'■^Va 


ORIGIN,  DEVELOPMENT  AND  ECONOMIC  EFFECTS  OF  LIMITED 
LIABILITY  IN  CORPORATION  FINANCE  IN  ENGLAND 
AND  THE  UNITED  STATES 


BY 


RAY  GEORGE  ELLIS 
B.  S.,  Pd.  B.  Syracuse  University,  1917 


THESIS 


Submitted  in  Partial  Fulfillment  of  the  Requirements  for  the 


Degree  of 

MASTER  OF  ARTS 
IN  ECONOMICS 


IN 


THE  GRADUATE  SCHOOL 

OF  THE 

UNIVERSITY  OF  ILLINOIS 


1921 


Digitized  by  the  Internet  Archive 
in  2016 


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THE  GRADUATE  SCHOOL 


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1 


CHAPTSn  I. 

The  corporation  as  a form  of  business  organisation 
has  proved  itself  si^erior  to  the  individual  enterpriser  and 
PcJrtnership.  'iodern  business  enterprise  is  carried  on  very 
largely  by  this  form  of  organization,  on  account  of  its  many 
advantages.  It  is  used  in  .u.any  forms  of  activity,  business, 
political,  and  social.  In  the  business  field,  manufacturing, 
commercial,  bonhing,  and  financial  groups  are  using  it.  Pol- 
itically, the  various  forms  of  our  governrsent,  federal,  state, 
and  municipal  are  organized  as  corporations.  In  the  social 
field,  there  are  membership,  religious,  and  fraternal  coip.'Cr- 
a'*'icns.  This  form  of  organization,  especially  in  the  business 
world,  is  becoming  more  common  every  day.  The  percentage  of 
the  world's  business  that  is  being  done  by  it  is  continually 
increasing. 


VI3  are  surrounded  by  corporate  activity  on  every 
side;  we  regard  it  as  the  natural  coijrse  of  development.  Te 
are  more  or  less  familiar  with  the  working  of  the  modern  cor- 
poration, It  is  here  and  we  use  it.  Until  very  recently 
little  has  been  said  or  written  about  the  history  of  corpor- 
ate development  from  its  earliest  traces  to  the  present  time. 
In  regard  to  almost  any  phase  of  corporate  activity  it  is 
difficult  to  determine  when  that  pscrtioular  characteri s tic 
first  bsg,iji  tc  be  used,  or  what  were  the  oir cuimstanoes  that 


lead  to  its  adoption. 

The  purpose  of  this  paper  is  to  show  something  of 
the  history  and  de-’^elopment  of  one  corporate  characteristic 
that  is  very  important  in  modern  business,  viz. 


the  limitatio 


2 


of  the  liability  of  the  stockholder. 

before  starting  this  probl«:a  there  are  t^vo  things 
that  ;jiust  have  so;ne  consideration:  (l)  What  it  is  that  rohes 
a business  unit  a corporation,  (3)  The  exact  kind  of  limited 


liability  that  is  being  considered. 

In  regard  to  the  first  of  these  there  are  m.nny  diff- 
erences o:^  opinion  as  to  what  is,  and,  ivhat  constitutes,  a 
corporation.  The  economist  regards  the  corporation  as  a 


collection  of  funds,  ’’massed  capital”  used  for  certain  stated 
purposes  and  administered  by  persons  who  .are  agents  the 
corporation.  The  law^’-er  regards  the  corporation  .-as  an  arti- 
ficial or  metaphysical  person  endowed  with  certain  rights  and 
privileges.  Thus  Elackstone  says,  "the  corporation  is  an  arti- 
ficial person  created  for  pyreseriring  in  p)er'petual  succession 
certain  rights,  which  being  conferred  on  natural  persons  only, 
would  fail  in  the  process  of  ti'-ie,”  In  the  Dartmouth  College 
Case  in  1319,  Chief  Justice  ’Jarshall  cf  the  United  States 
Supreme  Court  gave  a definition  that  is  ^;ery  similiar  to  the 
one  that  Blachstone  formulated.  Marshall  referred  to  a corpor- 
ation as  "an  artificial  being,  invisible,  intangible,  and  ex- 
isting only  in  contemplation  of  law.”  This  idea  of  an  artific- 
ial p. erson  has  been  held  since  the  fifteenth  century  in  Turcpe 
and  was  well  known  to  the  Romans,  from  whom  the  T'arope.an3  ob- 
tained many  of  their  ideas  on  the  smject.  The  above  two  def- 
initions are  the  two  most  famous  and  most  liUoted,  but  there 
were  in  earlier  times  very  definite  ideas  as  to  what  made  a 
corporation  an  independent  entity  v;ith  a personality  of  its 
OvTn.  There  are  three  particularly  clear  statements  of  what  con- 


3. 

stitutes  a corporation.  One  of  these  iates  hack  to  1612  and 
was  brought  out  in  Sutton's  Hospital  Case^.  At  this  tine  the 
following  things  were  said  to  be  "of  the  essence  of  a corpor- 
ation. 1st.  La’^ul  authority  of  incorporation  and  that  uay  be 
by  four  rieans,  vis.,  by  the  coroon  law,  as  of  the  king  hira- 
self,  etc.;  by  the  authority  of  ParliaiBent;  by  the  king's 
charter;  and  by  prescription.  The  2d,  which  is  of  the  essence 
of  the  incorporation  are  persons  to  be  incorporated,  and  that 
in  two  laonners;  viz.,  persons  natural,  or  bodies  incorporate 
end  political.  3d.  A nariie  by  which  they  are  incorporated.  4th. 
Cf  a place,  for  without  a place  no  incorporation  can  be  made. 
5th.  By  words  sufficient  in  law  but  not  restrained  to  any  cer- 
tain legal,  and  prescript  form  of  v/ords." 

The  first  requirement  is  of  fundamental  importance 
and  is  known  to  ha\=e  existed  in  the  Roman  law.  It  is  stated 
on  good  authority*^  that  sc  far  as  is  known  prescription  and 
common  law  corporations  were  the  older  forms  and  that  from 
the  first  a charter  from  the  king  or  authority  from  Parlia- 
ment was  necessary  to  form  a business  corporation  — and  bus- 
iness corporations  are  the  ones  that  make  the  greatest  use  of 
the  principle  that  is  about  to  be  considered. 


1-  10  Rep.  29  b. 

3-  Samuel  Willi ston.  History  of  the  Law  of  Business  Corpor- 
ations Before  1300. 

The  three  sets  of  things  that  gc  to  make  a corporation, 

given  in  this  chapter,  occur  in  Williston’s  Article 
in  Harvard  Law  :^.eview  Vol.  II. 


X...  . " a.  r 


U-  . 


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t;w  V...  " . . . 


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•» 

The  oecond  re  luire’ient  Is  also  liiportant  anl  will,  of  course. 


always  be  present  in  the  case  of  a business  corporation.  In 
regard  to  the  third  point  there  have  been  cases'^  in  v;hich  the 
lack  of,  or,  a change  in,  na^*e  lid  not  des-'rpy  the  corporate 
nature  of  the  enterprise.  The  fourth  re'iuireraent,  that  of 
place,  was  considered  very  i»»portant  during  the  iiiddle  ages 
and  until  corporations  began  to  be  used  for  .-ore  varied  pur- 

p 

poses.  Williston  states  that  'it  is  hardly  -mientioned  in 


"The  Law  Corporations"  or  in  31ackstone’s  chapter  (Blacks. 


Cons,  Ch.  XVIII.  ) ayi  nterely  says,  "It  is  generally  lenonin- 
ated  of  soiiae  place."  (l  Kyd,  32S.),  and  it  may  be  assumed  us 
true  of  business  corporations,  as  '.cell  as  of  most  ethers, 
that  before  the  beginning  of  the  present  (l9th. ) century 


there  was  no  force  in  Coke's  fifth  essential  for  the  existence 
of  a corporation,  other  than  as  a ma-^ter  of  convenience . ' ^ 

The  last  requireijient  "By  words  sufficient  in  law..."  must  bs 
be  used  in  order  to  carry  out  the  first  one.  Neither  the  x^ing 
nor  P ai’ 1 i a..xen t can  bring  a corporation  into  being  without  the 
use  of  v;ords  siofficient  in  law.  If  it  is  concluded  that  the 
first  cf  the  above  four  ccniitlons  to  corporate  being  is  the 
only  one  that  needs  to  be  considered  in  connection  with  (busi- 
ness) corporations,  the  conclusion  will  be  in  agreemen'''  with 


1-  'layer  of  Stafford  v.  Bolton,  1 B.  S;  P.  40. 
B-  Har\^rd  Law  Review.  Vol.  II. 


Bishop  of  Rochester's  Case,  Owen,  73. 


I ' cn ' o e , 

Other  cases  are 


1 Ventr.  355. 
cited  by  Pi 11 is ton. 


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5. 


Colc3,  who  says,  in  regard  to  a corr-oration  already  created  : 
"7.’h3n  a corporation  is  duly  created,  all  other  incidents  are 
tacitly  annexed  — ...and  therefore  .divers  clauses  suhse'iuent 
in  the  charter  arc  not  of  necessity,  but  only  declaratory, 
and  might  as  well  be  left  out  as: — 

1st.  3y  the  sa/ae  to  have  authority,  ability?’,  and 
capacity  to  purchase,  but  no  clause  is  added  that  they  may 
alien,  etc.,  and  it  need  not,  for  it  is  an  incident. 

3d.  To  sue  and  be  sued,  implead  and  be  impleaded. 

3d.  To  ha\^8  a seal;  that  is  also  declaratory,  for 
when  they  ere  incorporated  they  maize  or  use  what  seal  they 
will. 

4th.  Tc  restrain  them  from  aliening  or  devising  but 
in  certain  forms;  that  is  an  ordinance  testifying  the  king's 
desire,  but  it  is  not  a precept  and  does  not  bind  in  lav;. 

5th,  That  the  s'orvivors  shall  be  a corccraticn; 
that  io  a good  clause  to  oust  doubts  and  questions  .vhich 
might  arise,  the  n'uiiber  being  certain, 

Sth.  If  the  revenue  increases,  that  they  shall  be 
used  tc  increase  the  number  of  the  poor,  etc.,  that  is  also 
explanatory. 

Sth.  To  maize  ordinances;  that  is  a re^^uisite  for  the 
good  order  and  government  of  the  peer,  etc.,  but  not  to  the 
essence  of  the  incorporation. 

10th.  The  license  to  purchase  in  mortmain  is 


1-  Sutton's  Hospital  Case.  1C  Rep.  50. 

This  is  the  second  of  the  three  lists  referred  to,  above 


nscsssaxy  -^cr  tl*o  niaintsr.ar.ee  and  sj^jpert  of  tiis  i-’oor,  for 
without  revenuea  they  caiinct  live,  end  .vitheut  a licsnse  in 
.-crtnain  they  cannot  lawfully  purchase  rsvenuss,  and  yet 
that  is  not  of  the  essence  of  the  ccrpcra.tion,  for  the  cor- 
peratien  is  perfect  without  it.” 

The  list  of  corporate  attributes  given  by  flachstone 
is  very  similiar.^  According  to  hiiii  the  incidents  which  are 
annexed  to  every  corperation  as  soon  as  it  is  duly  erected  are: 
1st.  Tc  have  perpetual  succession.  This  is  the  very 
end  of  its  incorporation  for  there  can  not  be  a succession 
forever  without  an  incerperat ion,  and  therefore  all  aggregate 
corporations  have  a power  necessarily  i;..pliad  of  electing 
nenbers  in  the  rcoru  of  such  as  go  off. 


y 

O 


ran 


or 


2nd.  To  sue  and  be  sued,  iapl<=aci  and  be  iiuy  leaded, 
receive  by  its  corporate  no:ae,  and  do  all  other  acts 


as  natural  persons  .;iay. 


3rd,  To  purchiuae  lands  and  hold  them  for  the  benefit 
of  themselv-es  and  their  successors,  which  two  are  consequen- 
tial of  the  for.mer. 

4th.  Tc  have  a common  seal. 

5th,  To  :zake  by-laws  or  private  statutes  for  the 
better  government  of  the  corporation,  which  are  binding  on 
thsiiselv'es,  ^jnless  they  are  contrary  to  the  law  of  the  realm, 
and  then  they  are  void. 


1-  Elackstens's  Ccmiientaries  47o, 


is  t-.e  last  of  the  three  li 


sss  reierrsd  to,  above. 


V.'ocd's  Inst,  of  the  Laws  of  Eng.,  Eock  I,  Chap . S. 


7 . 

It  is  advisable  not  tc  sc  tec  e-^actlng  as  to  jact 
v.’bat  fcrrus  a group  cf  persons  into  a correratien  v;licn  such 
excellent  autnorities  as  ’'^cllock  and.  "'.?vi-*:land  advise  suck 
caution  as  this:  "V.'e  are  net  likely  to  find  tLs  essence  of 
a corporation  in  any  one  rule  rule  of  la'.v.  If,  for  exaiple, 
an  I]nglish  lav.yer  rould  :iake  all  turn  on  the  cou'"or.  seal,  he 
vrculd  be  setting  up  a merely  English  rule  as  a necessary 
naxiii  on  jurisprudence;  not  only  sc,  for  he  v.culd  be  begging 
an  important  ^lUestion  a,bout  the  early  history  cf  corporations 
in  England.  Sonie  again  may  feel  inolired  to  say  th^t  a oorp.sr- 
ation  must  have  its  origin  in  a special  a.ct  of  the  Sta.te,  for 
examp.le,  in  England  a royal  charter;  but  they  again  vill  be 
in  danger  of  begging  a Cj.uestion  about  ancient  history’-,  /hiile 
they  .vill  have  difficulty  in  sq.uaring  t?ieir  opinion  vlth  the 
iicdern  history:  of  Joint-stock  cOi:ftpa.nies . do.lern  legislation 
enables  a s.iall  group  of  private  ;ien  tc  engender  a corporation 
by  registration,  and  to  u^ge  that  this  is  the  effect  of  'stat- 
ute’ and  not  of  'co.imon  law'  is  to  insist  upon  a distinction 
v;hich  Yv'e  hardlj'-  dare  carry  be^’oni  the  four  seas.  Or,  to  cone 
to  .a  :.;ore  vital  point,  shall  we  demand  that  an  indivivdual  cor- 
porator -shall  net  be  liable  '^^or  the  debts  of  the  ^v^ri  orat icn? 
'Si  quid  universitati  debetur  singulis  non  debetur;  nec  -lucd 
debet  universitas  singuli  debent.'  (Dig.  3,4,o.)  — is  not 
this  the  very  core  of  the  matter?  Once  ^aore  uodern  legislation 
bids  us  pa’use;-  there  is  no  rea^son  why  a statute  should  not 
say  that  a Judgement  obtained  against  a corporation  can  not 
be  enforced  against  all  the  goods  cf  every  single  corporator, 
and  this  althoU:?h  the  cerroratien  still  exists:-  in  ordering 


e. 

that  tl'.ia  he  so  ^ le^iela.ture  dees  not  contra^di  at 

In  the  first  half  of  this  century  — nineteenth  — cur^parlie- 
’■/i.ent  tried  ■•cany  experl '•*ients  of  this  kind.  (Hse,  for  exu'-ple, 
the  Act  for  the  Registration  of  Joint-Stock  Go?ip'mies,  7 d 3 
’net.  c.  110.  sec.  £5,  Se.)'»^ 

Ohere  is  one  requisite  running  through  these  lists 
that_,  in  regard  to  husiness  corporations,  v;e  .Lay  he  certain 
is  absolutely  f ■’Jin d anient al,  and  it  is,  that  corporations  :»ust 
come  into  being  through  the  instrumentality’-  of  the  sovereign 
po^er.'^  Sotu  Coke  and  Elackstone  agree  that  the  other  things 
are  net  essential;  that  to  be  "incorporated”  .means  to  have 
them;  they  are  "incidents"  and  -/v-ill  aluays  bs  present. 

However,  in  the  earlier  English  companies,  it  is 
difficult  to  determine  when  a corporation  has  been  created. 

For  instance,  .m-any  of  the  monopolies  cf  the  'liddle  Ages 
were  not  corporations  and  were  not  intended  to  be  such.  They 
were  granted  a monopoly  only’’;  a separate,  artificial  person 
was  not  created.  Revertheless  some  of  these  companies  doing 
business  within  the  country,  having  a grant  from  the  king  or 
Parliament,  but  not  specifically’-  declared  to  be  a corporation, 
have  performed  all  of  the  functions  of  the  corporation  as  it 
was  constituted  at  that  time.  In  such  cases,  or,  in  any’-  case 
where  a company  has  a charter  from  the  king  or  Parliament 


and  exercises 

so;.:e 

of  the  functions  set  forth 

by 

P lack 3 ton 

cr  Ccke  as  of 

the 

"essence  cf  a corporat icn, " 

I s 

hall  con- 

1-  Pcllcck  and  Puitland.  Eist.  cf  Eng.  Law.  Vol.  T,  p. 

p.  3. 


2-  Supra 


427. 


-j  i.'«,/  ■ , '-vW  /t  • 'i-!  -(w  ,'>*.‘iS,  V , 


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/ •' Jjt  '•  -^'i  ■■  ■■  I ' ^ V 1M^U^y.SfJCTj^  ■ I ^ 

?.'•  ■ -^trU.  -:i  .i?  : *-'  . : ' ■ : . ■; 


!,  i ''-  ■-  "‘i 


TWrrjl 


li.itt'iii,;i*'  „ -iiit'' 'j^‘- >:  ■ 


u-  . 


o 


sidc?r  It  a corpcraticr. . This  is  nscssc^ry  bscaua^  the  cer::cr- 
aticn  lias  been  develcpad  by  a slo-v  end  evcluticnary  process,'- 
It  is  practically  impossible  to  determine  nhetner  seme  si  the 
eai’ly  irnglisb  cc.;:pani^s  should,  or,  should  not,  be  included  in 
the  list  of  corporations,  just  as  it  is  difficult,  at  the  pres- 
ent time,  to  draw  the  line,  in  sc'^-.e  cases,  betv;s8n  the  limited 
artnership  and  the  trus  corporation.  In  cases  of  this  hind 
the  coui’ts  have  followed  about  such  a policy  as  I have  sug- 
gested, vi«.  where  little  ?/as  known  except  that  the  fw.ct  that 
they  were  incorporated,  they  were  held  to  have  hv.d  the  other 
corporate  characteriet ics . ^ 

Ey  limited  liability  is  meant  the  limitation  of  the 
liaoility  of  the  shareholders  of  tne  corporation.  This  needs 
little  e.q.'l aviation  as  it  is  a la^uiliar  principle  today.  In 
the  modern  business  corporation  the  stock*.older  who  has  fully 
,-o^id  the  par  value  ci  his  stock  has  no  further  liability. 

That  is,  in  case  of  insolvency,  the  creditors  can  not  bring 
suit  against  him  as  they  might  i-n  the  case  of  a 'cartnershir, , 


oiA  J 


.ith.  English  Gilds. 

E.  Staley,  '"he  Gilds  of  Florence. 

Geo.  "Unwin.  Industrial  Organization  in  t:..e  XVIth,  & IVIIth. 

V 

Centuries. 

J.  P.  Eenvis.  Corporations.  Their  Origin  and  I-evelcpment. 

W.  R.  Scott.  Joint-Stock  Goripanies  to  1730, 

Vh  C.  Holdsworth.  The  Early  History  of  Cora--.3roial  Socie-*:ies 
In  J’uridical  Review,  Vcl,  3S. 

3-  Company  of  Wcc'diiicngers.  Finer 's  Abridg.rent.  Vol.  VI,  -c.  3S8, 


10. 


Tills  is  tiis  kind  of  liability  and  its  li.iltaticn  that  ’.vill 

no'.v  be  considered.  There  are  cases  of  special  liability  of 
the  aerabsrs  of  corporations,  bat  they  have  no  direct  bear- 
ing on  this  topic,  and  will,  in  most  cases,  bo  disregarded, 
such  as;  the  double  liability  imposed  on  stockholders  of  all 
corporations  in  certain  states^,  ti^e  double  liability  that 
usually  goes  with  banking  and  certain  other  forms  of  ,bu3lne'=^ 
wherever  they  may  be  situated,  spec^"''  li'='bility  of  stock- 
holders for  the  payment  of  wages  to  labor  employed.  It  is 


conceivable  that  any  kinl  of  stockholders’  liability  may  ex- 
ist  by  special  agreement.  In  a case*  where  all  of  the  members 
of  a corporation  covenanted  in  its  behalf,  under  their  private 
seals,  binding  themselves  and  their  heirs  that  the  corpor- 
ation should  do  certain  acts,  it  was  held  that  t..ey  were  per- 
sonally bound.  The  power  that  creates  the  corpcratlcn  (uing, 
Parliamnet,  legislature.)  may  ilso  make  any  kind  cf  special 
liability  for  the  members  of  certain  ccrpcrations  which  they 
authorise. ^ 


1-  'linnesota,  California.  See  Con3?’ngton.  Corporate  Organisation 
and  ’management,  p.  11c. 

0-  Tillensten  et  al.  v.  Newell  et.  al.  13.  Mass.  406. 

3-  Supra.  7 & S.  Hef.  Pollock  and  Maitland. 


11. 


r«T-f  /''DfTiT7'-'  TT 
w .lii.  - " . . ■>.  X . 

The  corpore.tlon  is  of  very  ancien+:  origin.  If  is  the 
opinion  of  Angell  nnd  Ames  that  it  was  hnovm  to  the  Greeks, 

that  the  Romans  obtained  their  knowledge  of  it  from  them.  ^ 
In  the  early  Roman  law  there  was  not  a limitation  of  liability 
for  the  members  of  a.  corporation.  As  the  Homan  corporations 
were  not,  in  most  cases,  business  or  trading  organisations, 
it  is  not  strange  that  this  feature  developed  later.  "In  Rovem 
law  it  seems  that  if  the  corporation  became  insolvent  the  per- 
sons constituting  it  were  obliged  to  contribute  of  their  per- 


r> 

sonal  fortunes. 

Later,  in  the  Roman  law,  there  was  a limitation  of 
liability’-  set  forth  in  the  Code  of  Justinian  in  the  sixth  cen- 
tury. "Si  quid  universitati  debetur  singulis  non  debetur;  nec 

3 

c\,icd  debet  miversitas  sin  gull  debent." 

The  development  in  Rngland  was  about  the  same.  In  the 
earlier  psrt  of  their  history  there  was  no  limitation  of  the 
responsibilities  of  the  members  of  corporations  -"hile  after 
the  fifteenth  century  members  were  not  responsible  in  their 
personal  property  for  the  debts  of  the  corporation.  There  is 
no  connection  between  the  lack  of  this  feature  in  early  Eng- 
land and  its  non-appearance  in  early  Rome.  There  is,  however, 


1- 

Angell 

and  Ames 

on  Corporations. 

Select 

Essays  in 

Anglo-American  Legal  History. 

p.  107, 

See:  Ayliffe  200 

(Code  Book  I tit.  3.  ) Savigny 

Sys.  J33 

Williston' 3 Article  In  Harvard  Law  Review,  7cl.  II,  P.  ISO 
3-  Elackstone  (Cooley)  Vol.  I,  p.  435  quoting  Pandectae  (Fleta. ) 


.*.s' 


i 


* > 


X. 


...:,£  ‘ 


a connecticn  betxsan  the  developneent  of  the  cf  lim- 

ited liabilitj^  in  England  and  the  use  of  it  by  the  later  l.on- 
.•me.  Hien  the  ^nglieh  lawyers  began  to  search  the  old  F.onicn 
lav/3,  from  the  thirteenth  centur\^  on,  it  is  only  nat^rral  that 
they  would  be  influenced  by  what  they  fo’jnd.  John  ?.  llavis 
states  that  limited  liability'-  was  not  a featiurs  of  the  e.arly 
corporate  life  in  T^nglsnd.  He  further  sa3’’S,  ’in  a rough  way, 


the  members  of  medieval  gilds  and  municipalities  were  held 
;;ointly  responsible  for  the  debts  of  members,  whether  incurred 
in  personal  transactions,  or  in  transactions  relating  to 
matters  of  common  concern;  it  was  only  when  the  cornuunity  in 
thought  and  aotion  and  legal  i-ules  was  con^lete,  in  the  fif- 


teenth centurj''  that  the  well-known  principle  of  the  ccmiacn  law 
"Si  '-.yail  ^jni versit at i debetur  singulis  non  debetur;  nec  quod 
debst  univsrsitas  sinsuli  debent.”  became  annlicable  in  Hng- 
land.  ’ 1 This  statement  is  in  agreement  with  f’ollock  and  Mait- 
land who  say  that,  ”If  v;e  insist  ■'■hat  the  common  la*"  can  not 
hold  the  singuli  liable  for  the  debt  of  the  universitas,  we 
shall  •'’ind  little  to  sa^^  about  corporations  in  pcny  oentur^" 


; rib  . 


1 


doss 


isr  than  the  fifteenth. 

There  is  only  one  authorit;/  that  I ha''-e  found  who 
not  agree  that  liwiteci  liability’-  was  not  well  establish 
he  cemoon  law  in  Hnglani  b^’’  the  fifteenth  century*.  This 


ed 


1-  John  P-  Davis.  Corporations  Their  Origin  and  Oevelonment . 

""el.  I.  p.  C6. 

2-  Pollock  and  '■''aitland.  Histor\’’  of  '^n^lish  Law. 

U07 


^,^Ol.  I. 


authority^  has  this  to  sa^?-:  'i.ou’ot  It  has  hssn  settle!  for  a 

long  time  that  the  in!i viau..' 1 aemoers  are  not  liable  for  the 
hibts  of  a cori’. oration,  oni  it  has  even  been  saih  that  "the 
personal  responsibility  of  the  stockhollsrn  ia  inconsistent 


with  the  nature  of  a boly  ccri'crate,  " ("lyers  r.  Trvrin,  h 3,  & 

H.  371,  per  Tilghman,  G.  J.  ) yet  in  the  hornan  law  it  seems 
that  if  the  coip^oraticn  became  inscl\/-ent  tl.e  x-ersons  consti- 
tuting it  were  obliged  to  contribute  their  private  for‘^urv=e; 
(Ayliffe,  £00,  referring  to  code,  Bk.  i,  tit.  3;  oavigny  Cys. 
a 0£.  ) and  though  it  may  be  hazardous  to  assert  that  at  common 
IctW  the  rule  the  same  in  England,  it  is  certain  that,  so 
fa,r  as  the  evidence  goes,  it  points  to  that  conclusion. 

This  is  followed  on  the  same  page  by  cases  where  the  members 
v;ere  not  held  liable  and  by  cases  -where  thej  were  so  held.  As 
I an  using  the  sane  cases  a little  farther  on,  T ./ill  not  take 
them  i:^.  here.  The  cases  which  he  gives  shew  that  members 
were  held  liable  are  exceptional  and  u^iusual  and  seem  tc  in- 
■'.’•clve  questions  of  pleading  and  prcceedure  rather  than  a desire 
on  the  part  of  the  court  to  hold  individual  members  of  cor- 


pora.tions lia,ble  for  its  debts.  ^ 

The  idea  of  the  corporation  as  a distinct,  separate 
personality  had  been  under  discussion  by  English  lawyers  for 
some  time  by  the  fifteenth  century  and  wus  practically  accex: ted 


1-  "!^/illis ton . Harvard  Law  B.e  view,  Vol.  II. 

£-  Ibid.  p.  160. 

o-  The  cases  are:  Dr.  Salmon  v.  The  I-'a/nbo rough  Co/ipany;  Ch. 

Gas.  334;  s.  c.  c Vin.  Abr.  310. 

Harvey  v.  East  India  Companv.  3 Vern. 


335 . 


LS., 

K 

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1-i. 

by  tli3m.  As  aarly  s.s  tbo  reign  of  bA.vard  III  \lZZ7-lo77) 
hai  reached  these  conclueions: 

1-  A corpcration  is  a body  distinct  from  its  members. 

2-  The  property  of  the  corpora.tion  is  distinct  from 
the  property  of  its  members. 

3-  The  property  of  its  members  can  not  be  t alien  in 
execution  for  the  debts  of  the  corpcration , or, 
vice  versa. ^ 

A case  that  came  up  in  1429  shows  the  progress  of  this 
idea.  "So  late  as  1439  an  action  of  trespass  was  brcoght  against 
the  'layer.  Bailiffs  and  Commonalty  of  Ipswich  and  one  J.  Jabe. 

The  defendants  pleaded  the  mai'velous  plea  that  Jabe  was  one  of 
the  commons. Ity  and  therefore  was  named  twice  over.  If  the  defen- 
dants were  found  guilty,  then  ;it  was  surged)  Jsbe  vrill  be  charg- 
ed twice  over;  besides  he  may  be  found  not  guilty  and  the  conrnon- 
alty  guilty;  that  is  to  say,  he  may  be  found  both  ^uilty  and  not 
guilty.  We  do  not  know  how  the  case  was  decided  but  it,  was  twice 
discussed.  Tncidentadly  a f ’cndamental  question  of  corporation 
law  was  raised.  Cuppese  that  the  judgement  is  gi".ren  against  the 
commonalty,  can  the  goods  of  the  members  be  taken  in  execution'? 
On  the  whole  the  judges  think  not,  but  are  not  very  s'cre."^  It 
is  pointed  cut  by  the  authors  that  one  of  the  reasons  they  were 


1-  Hcldsworth.  History  of  English  Law.  Vol.  Ill,  p.  363.' 
See:  Year  Bock  S Henry  VI  ITich.  pi.  3. 

20  Henry  VI  Vich.  x-1.  13. 

31  Edward  IV  "'^asch.  pi.  21.  Case  of  Abbot 


0 f Hulme . 

3-  Pollock  and  Ja.lt lari.d.  Vol.  1459 


« v/  ' 


J.O  . 


not  v'::ry  sure  v;us  tl:e  bhat  Zln^B  ~’^nch  forced 

collection  from  all  the  members  of  a community  in  case  that 
community  could  not  pay,  but,  "The  obvious  tendency  of  tiJ,  ^ 
c.lmission  they  seek  to  avoid  by  saying  that  there  is  a great 
difference  between  the  king  and  anyone  else.”  It  Is  the 
opinion  of  Pollock  and  daitland  that  they  could  not  avoid 
making  this  admission,  as  the  members  of  municipal  co.mmun- 
itiss  were  constantly  being  treated  as  liable  in  their  goods 
to  satisfy  the  king  for  debts  that  .might  be  made  by  the 
community  as  a whole.  In  regard  to  this  case  the  sarne  author- 
ities say  that,  ”a  mere  doubt  about  the  general  x-^rincip la 
of  corporate  liability  coming  at  so  late  a date  as  1423  is 
remarks able. ” 


A case  that  occ’ured  net  long  after  this  shows  that 
the  principle  of  limited  ' liabili  tjr  was  well  established.  In 
1437  "It  is  said  that  if  a man  recovers  debt  or  damages 
against  a commonalty  he  shall  only  have  eAScuticn  against  tns 
goods  that  they  have  in  common.”^  Following  this,  there  was  a 
case  in  1443  in  which  it  '.vas  held  on  a judgement  against  a cor- 
poration that  onl2"  the  goods  of  the  corporation  could  be  taken. 

I think  there  is  little  :^uestion  about  the  principle 
of  the  limited  liability  of  the  members  of  corporations  being 
established  by  the  fifteenth  century.  The  cases  and  authorities 
cited  bear  out  this  opinion.  I have  net  been  able  to  find  a 


1-  Pollock  and  k'aitland.  Vcl.  I.  Fits.  Ahr.  Execution,  pi. 

128,  citing  an  unprinted  Y.  B.  of  Yich.  16  Hen.  VI, 

2-  Holdsxvorth.  History  of  English  Lav;.  Vol.  Ill,  p.  3SS. 


16 


a case  on  record  after  1400  where  the  goods  of  the  indi\ddual 
meinbers  of  an  incorporated  company  were  allowed  to  be  taken  in 
execution. 

tfj'*  ' 


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17 

CHAPTER  III. 

There  were  no  more  cases  involving  the  liability  of 
the  members  of  companies  until  after  the  middle  of  the  seven- 
teenth century.  There  is  considerable  indirect  evidence  to  show 
there  was  a steady  progress  in  the  development  of  the  idea. in 
the  meantime.  An  interesting  case  was  tried  in  1670  which  Viner 
gives  as  follows:  "Money  was  loaned  to  the  Company  of  Woodmon- 
gers,  who  were  incorporated,  and  a bond  was  sealed  with  their 
common  seal,  and  subscribed  by  the  defendants,  who  were  two  of 
the  principal  of  the  company.  The  bond  was  noverint  universi  &c. 
nos  magistrum  & guardianos  &c.  of  the  Corrpany  of  Woodmongers  &c. 
and  now  the  company  being  dissolved  action  was  brought  against 
those  who  subscribed  the  bond;  but  ruled,  that  it  could  not  lie; 
so  the  plaintiff  was  nonsuit."^  Five  years  later  there  was  a 
similiar  decision:  "A  member  of  a company  set  his  name  to  a 
bond  under  the  common  seal  of  the  company;  this  does  not  legally 
bind  him  in  his  capacity. So  far  as  the  records  show  it  was 
seven  years  before  another  case  bearing  on  this  sub;Ject  came  up, 
and  the  decision  was  "For  a duty  or  charge  \:pon  a corporation, 
every  particular  member  thereof  is  not  liable,  but  process 


1-  Viner 's  Abridgement  of  taw  and  Equity.  Vol.  VI,  p.  298. 

See  also  Lev.  237  Pasch.  20  Car.  2 B,  R.  Edwards  v.  Brown. 
Viner  also  refers  to  1 Stra.  434,  Show.  174,  3 Wils.  269. 

2-  Ibid.  Vol.  VI,  p.  299.  Arg.  Fin.  R,  84  Hill  25  Car.  2.  in 

Case  of  Naylor  v.  Brown  late  master  of  the  Wood- 
mongers’  Company. 


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18. 

ought  to  go  in  their  publick  capacity."^ 

These  axe  all  of  the  cases  occuring  during  this  period 
that  have  a definite  bearing  on  limited  liability.  There  were 
several  oases  in  which  the  individual  members  of  companies  were 
held  responsible  for  the  company’s  obligations  where  the  com- 
pany had  no  goods.  However,  these  were  cases  involving  irreg- 
ular pleading,  usually  involving  distringas,  and  the  result  ob- 
tained was  because  of  this  and  not  because  the  court  wished  to 
hold  the  members  of  companies  liable  for  the  latter’s  debts. ^ 

One  of  these  cases  (The  Haraborough  Case)  that  will  be  consider- 
ed in  the  following  extract  from  an  article  by  W,  S.  Holdsworth 
occuring  in  the  28th.  volume  of  the  Juridical  Review  was  diff- 
erent in  that  the  creditors  were  able  to  force  the  company  to 
make  leviations  against  the  members  of  the  company  for  the  pay- 
ment of  its  debts. 

Holdsworth  summarizes  this  whole  period  as  follows: 

"As  early  as  the  fifteenth  century  it  was  clear  that  an  in- 
dividual corporator  was  not  personally  liable  for  the  debts 
of  the  corporation;  (b)  and,  after  some  hesitation,  (c)  this 


1-  ¥iner*s  Abridgement.  Vol.  YI,  p.  299. 

2-  Ibid.  Vol.  VI,  p.  310. 

Vern.  122.  Hill  1682  in  Case  of  Curson  v.  African 
Company. 

S.  G.  & S.  P.  cite  2.  Vern.  396  in  Case  of  Harvey 
V.  African  Company. 

Dr.  Salmon  v.  Hamborough  Co. 

(b)  Holdsworth,  H.  E.  L. , III.  369. 


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19. 


conclusion  was  ultimately  accepted  in  the  latter  part  of  the 
seventeenth  century,  (a)  Indeed,  one  of  the  advantages  which 
petitioners  for  incorporation  frequently  set  out  was  the  clear 
separation  which  necessarily  followed  between  the  liability 
of  the  corporation  and  that  of  its  members;  (b)  and  it  is  fair- 


Continued: 

(c)  See  the  authorities  cited  by  Carr,  Select  Charters  (S.S.), 
XVIII.  n.  1.  He  points  out  that  "the  indenture  which 
settled  the  sums  and  rents  due  to  the  king  from  the  Starch- 
makers  Company  (Patent  Rolls,  20  Jac.  I.  pt.  x. ) provided 
that  no  such  s\iras 'shall  in  any  sort  be  demanded  levied  re- 
covered or  had  but  only  of  the  body  corporate’";  and  that 
in  1655  the  Governor  of  the  East  India  Company  got  an  in- 
demnity from  the  company  "because  his  name  is  used  in  all 
suits  and  actions";  Hobbes  (Leviathan,  120)  thought  that 
"If  a body  politique  of  merchants  contract  a debt  due  to  a 
stranger  by  the  act  of  their  representative  anently,  every 
member  is  lyable  by  himself  for  the  whole. " 

(a)  Edmunds  v.  Brown  and  Tillard  (1668),  1 Lev.  237;  Salmon  v. 
The  Hambo rough  Company  (1671),  1 Ch.  Cas.  204. 

(b)  Carr  (Select  Charters  (S,  S. ),  XVII.,  XVIII.)  says  that  the 
following  formula,  taken  from  a petition  for  incorporation 
in  1693,  is  common:-  "The  same  (i.  e.  a joint  stock)  is  not 
to  be  raised  unless  upon  the  establishment  of  a corporation, 
because  if  such  an  undertaking  should  be  carried  on  only  by 
articles  of  partnership,  the  stock  will  be  liable  to  the 
particular  and  private  debts  of  the  several  partners  and 


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t- ; Ji' 


20. 


ly  clear  from  the  statutes  which  established  the  Bank  of  England 
that,  if  the  individual  corporators  were  to  be  made  liable  for 
the  debts  of  the  corporation,  this  liability  could  only  be  im- 
posed by  express  legislative  enactment,  (c)  On  the  other  hand, 
the  coiporators  or  shareholders  were  liable  to  pay  to  the  cor- 
poration the  sums  assessed  upon  them  by  the  corporation;  and  the 
power  to  make  these  "leviations"  naturally  took  a prominent 
place  in  the  charters  of  some  of  these  companies,  (d)  But,  that 


Continued: 

subject  to  be  torn  to  pieces  upon  the  bankruptcy  of  any  of 
them";  cp.  S.  P.  Dorn.  (1691-92),  523-4. 

(c)  5 & 6 William  and  Mary,  c.  20,  sect.  25  — If  the  corpor- 
ation borrows  more  than  il, 200,000  the  individual  corpor- 
ators are  to  be  personally  liable;  8 & 9 William  III.  c.  20, 
sect.  49  — If  the  capital  is  diminished  by  the  payment  of 
dividends  so  that  it  is  not  enough  to  pay  the  corporate 
debts  the  members  are  to  be  liable  to  the  extent  of  the 
dividends  received. 

(d)  Select  Charters  (S.  S.),  XVIII.  n.  1;  1,  2,  91,  92,  164, 

215.  For  instances  in  which  these  leviations  were  made, 
see  Scott,  op.  cit.,  II.  47,  48,  59,  66,  80,  366,  367: 
for  cases  in  which  the  authority  of  the  council  was  in- 
voked to  force  the  payment  of  these  leviations,  see  Hist. 
MSSS.  Com.,  4th.  Rep.  App.  18,  20  (the  Muscovy  Company); 

S.  P.  Dorn.  (1634),  352,  cclxxviii.  No.  39  — Order  of 
Council  on  petition  of  the  Governor  and  Company  of  Silk- 
men  of  London,  ibid.  (1637,  1638),  260,  ccclxxxiii  No  20  — 


■S  ' ' .1 

( 


. lAll? 


f‘  - ■,.].■  : ....  .....r-;,:  , ^ 

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31. 

being  so,  it  is  clear  that,  if  creditors  could  get  an  order  from 
a Court  that  the  company  should  make  "leviations"  upon  their  mem- 
bers, the  creditors  could  indirectly  make  the  individual  members 
of  the  company  liable  to  the  extent  necessary  to  satisfy  their 
debt.  By  a sort  of  subrogation  the  creditors  could  use  the  powers 
of  the  company  against  the  individuals  composing  it,  and  so 
force  these  individuals  to  pay.  We  see  this  idea  forshadowed  in 
a petition  to  the  council  in  1639;  (a)  in  1653  it  was  proposed 
to  give  it  a statutory  force;  (b)  and  in  1671  this  course  was 
sanctioned  by  the  House  of  Lords  in  the  case  of  Salmon  v.  The 
Hamborough  Company,  (c)  But  it  should  be  observed  that,  as  the 


Cont inued ; 

Order  of  Council  on  petition  of  the  governor  of  one  of  the 
associations  of  Royal  Fishings;  cp.  ibid.  (1639),  381, 
ccccxxv.  No.  43. 

(a)  S.  P.  Dom.  (1639),  381,  382,  ccccxxv.  No.  43. 

(b)  See  the  Drai’t  Act  "for  the  recovery  of  debts  owing  by  cor- 
porations" (Somers*  Tracts,  vi.  187).  Under  that  Act,  if  the 
deviations  were  not  made,  execution  was  to  be  had  against 
the  estate  of  the  person  who  ought  to  have  made  it. 

(c)  (1671)  1 Ch.  Cas.  at  pp.  206,  207  the  Lords  ordered  that  the 
Governor  and  Assistants  of  the  company  should  "make  such  a 
deviation  upon  every  member  of  the  said  company... as  shall 
be  sufficient  to  satisfy  the  said  sum  to  be  decreed  to  the 
plaintiff  in  that  cause,  and  to  collect  and  levy  the  same, 
and  to  pay  it  over  to  the  plaintiff  as  the  court  shall  direct 
...And  if... the  sai^  money  so  to  be  assessed  shall  not  be 


-4iC.r  v;  1 :•  • ; :.!.•  ?:r  ^'qi.c’  ;J:  -i^  t.-  -■•rain  7r_.  c:. 


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V.  ’rc.t.f''  i'Cf  c'J  oi?  Vijiicfli  bljBo  i F7*  . . . 


v/') 

(d) 


(u) 


creditors'  rights  against  the  individuals  depended  upon  the  ex- 
istence of  the  company's  right  to  make  "leviat ions"  upon  the  in- 
dividuals composing  it,  they  lost  these  rights  if  in  fact  the 
company  had  no  power  to  make  leviat ions.  This  opened  the  door 
to  the  possibility  of  limiting  the  liability  of  the  members  of 
the  company  by  a contract  between  the  members  of  the  company 
and  the  company,  which  provided  that  the  members  should  not  be 
liable  to  be  called  to  pay  more  than  a fixed  sum.  Such  bargains 
were  made;  (d)  and  that  they  were  both  common  and  efficacious 


Continued : 

paid,  then  and  from  thenceforth  every  person  of  the  said 
company,  upon  such  a leviat ion  shall  be  made  to  be  liable 
in  his  capacity  to  pay  his  quota  or  proportion  assessed. 
And  the  Loed  Chancellor. . . is  to  order. . . that  such  process 
shall  issue  against  any  such  members  so  refusing  or  delay- 
ing to  pay  his  quota  or  proportion  as  is  usual  against 
persons  charged  by  the  decree  of  the  said  court,  for  any 
duty  in  their  several  capacities.  " For  further  information 
about  this  case  and  the  difficulties  of  the  company  see 
Hist.  MSSS.  Com.  8th  Rep.  App,  p.  147,  No.  310;  9th  Rep. 


(d)  Scott,  op.  cit.,  i.  238  — An  agreement  in  1637-38,  that  a 
shareholder  in  the  Mosquito  Islands  Company  who  had  paid 
calls  \;5)  to  LlOOO  might  elect  not  to  go  farther;  ibid. , 

344 — The  shareholders  in  the  Million  Bank  were  promised 
that  they  should  only  be  liable  to  the  extent  of  their 
stock.  I do  not  agree  with  Mr.  Scott  (op.  cit.,  i.  370) 


App.  pt.  ii.  p.  27.  No.  109;  ibid.,  p.  47,  No.  186. 


■:  ''''  .:C’c  .'  - J • .• ; ecr.  .-.i  . ' -xfe, 

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23. 


may  be  gathered  from  the  section  of  the  statute  of  1694  dealing 
with  the  liability  of  the  shareholders  in  the  Bank  of  England, 
which  declared  that  in  certain  events  they  were  to  be  personally 
liable  for  certain  debts,  notwithstanding  any  agreement  which 
they  may  have  made  with  the  company,  (a)  Thus  it  would  seem  that, 
by  the  adoption  of  the  corporate  form,  a clear  line  could  be 
drawn  between  the  company  and  its  members,  the  individual 
liability  of  the  members  of  the  company  could  be  limited  in 
any  way  agreed  on  between  the  contracting  parties." 

The  first  statutory  guarantee  of  limited  liability 
was  in  the  form  of  an  Act,  in  1662,  favoring  certain  compan- 
ies in  such  a way  as  to  amount  to  limited  liability  for  the 
members  of  those  companies.  Certain  events  paved  the  way  for 
this  action.  The  trading  and  fishing  companies  were  having 
financial  difficulties  about  the  middle  of  the  seventeenth 
century.  In  1633  and  1634  the  Fishery  society  had  suffered 
losses.  It  was  resolved  by  the  members  of  the  company  that 
any  further  capital  subscribed  should  be  exempt  from  any 
liability  for  the  deficit  of  these  two  years.  This  was  an 


Continued: 

that  the  Act  of  14  Charles  II.  c.  24,  which  exempted  cer- 
tain shareholders  from  the  bankruptcy  laws,  amounted  to  a 
limitation  of  liability;  it  only  comes  to  this,  that  they 
were  not  to  be  accounted  traders  and  so  could  not  be  made 
bankrupt;  if  they  were  solvent  their  liability  would  be  un- 
limited, 

(a)  5 & 6 William  & Mary,  c.  20  sect.  25. 


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24. 


unusual  arrangement  and  it  is  not  known,  had  a case  come  i?) 
involving  the  company,  whether  the  Fisheries  society  would 
have  been  classed  as  a corporation  and  the  principle  of  lim- 
ited liability  upheld  or  not.^  "Again  in  the  Mosquito  Is- 
lands Con^^any  it  was  agreed  that  any  member  who  had  paid 
calls  up  to  LI, 000.  a share  might  elect  *not  to  go  farther', 

o 

in  which  case  he  should  be  free  from  further  calls."  W.  R. 
Scott  remarks  that  this  resolution  would  have  raised  some 
interesting  legal  questions,  had  it  been  necessary  to  assess 
the  shareholders  for  the  payment  of  the  company's  debts. ^ 

Then  came  the  Act  of  1662,  mentioned  above. ^ As 
Scott  says,  "The  most  remarkable  feature,  connected  with  the 
companies  of  the  Restoration,  was  the  Act  of  1662,  which 
created  a species  of  limited  liability  in  favor  of  the  share- 
holders in  the  EAST  INDIA,  AFRICAN,  and  FISHERY  companies. 

It  was  enacted  that  subscribers  to  these  undertakings  should 
not  pro  tanto  be  subject  to  the  law  of  bankruptcy,  in  the 
event  of  losses  being  incurred  by  any  of  the  companies  named. 
The  effect  of  the  statute  was  that  a shareholder  was  only 
liable  for  the  amount  unpaid  on  his  shares,  and  it  is  clear 

that  such  legislation  was  disadvantageous  to  unincorporated 

5 

companies."  Holdsworth  does  not  agree  with  this  view.  He  be- 


1-  W.  R.  Scott.  Joinjt-Stock  Companies  to  1720.  Vol.  1,  p.  228. 

2-  Ibid. 

3-  Svpra.  p.  22,  Note  (d) 

4-  14  Car.  II.  c.  24. 


5-  Same  as  3. 


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25. 


lieves  that  it  only  saved  them  from  enforced  bankruptcy  and 
that  as  long  as  the  companies  mentioned  in  the  Act  were  sol- 
vent they  would  be  fully  liable.  The  Act^  itself  does  not 
appear  to  justify  a conclusion  that  limited  liability  of  the 
members  of  those  companies  was  the  exact  thing  that  was  es- 
tablished. It  would  seem  that  Holdsworth  held  himself  to  the 
letter  of  the  Act  while  Scott  studied  it  in  its  setting  and 
determined  the  legislative  intent. 


1-  The  Act  reads  as  follows; 

An  Act  Declaratory  Concerning  Bankrupts. 

"Whereas  divers  Noblemen,  Gentlemen  and  Persons  of  Quality, 
no  v/ays  bred  up  to  Trade  or  Merchandise,  do  oftentimes  put  in 
great  stocks  of  Money  into  the  East  India  Company,  or  Guiney 
Company,  and  the  Fishing  Trade,  and  such  other  publick  Socie- 
ties, and  receive  the  Precede  of  those  Stocks  sometimes  in 
Monies,  sometimes  in  Commodities  which  they  usually  sell  for 
Money,  or  exchange  again;  by  which  means  the  Trade  of  those 
Companies  is  much  encouraged.  Fishing  and  Navigation  increas- 
ed, and  the  publick  good  of  the  whole  Kingdom  very  much  ad- 
vanced: 

II.  Notwithstanding  which  great  Advantages  to  the  Publick, 
there  hath  lately  been  some  Opinion  conceived,  that  such  per- 
sons may  and  ought  to  be  made  subject  to  the  statutes  provi- 
ded against  Bankrupts; 

III.  For  the  better  declaring  and  explaining  the  Law  therein, 
and  to  the  end  that  such  persons  may  not  be  discouraged  in 
those  honorable  Endeavors  for  promoting  publick  Undertakings; 


i^Di  fwy.ff  well  i©v£g  t^no  - Jt  swell 

— Xoi?  jri6T/  3"1?A  gjiiJf  /rX^!>©nol^<so2r  8el£»'^"'Ji  e^s  |noi;u*  jfAiI^ 

-y 

foil  OQOfc  1 tinsel  eilT  .alctjEli:  ec#  biucnt  y^9df  fatv 

ed.f  10  XJolwx/Xwxoc  fi  ^ i4eW 

-f.£  &few  :ifidf  it,nx9.9sif  lo 

•'•1  ' ■' 

ol  \Xi9ewiil  tied  JaJ,  tso09  hlao^  .bedellt^J 

t/L8  z^t  nt  n fc«jibt/^8  ifsfooB  ^Udw  tfoA  eii>t  lo 

• e7i^alsi>.nl  edl  l*e0l 


|f- 


I 


;i«oXXol  edT  -X  . 

SalnT&ouo^  ^ 

lo  8fio«i6<l  bdfl  ae«&el4u&?>  »neo»X4oVS  axwlX)  ^ 

r.l  ti/q  amUnbf^o  ott  .etltcsdeTeV  *io  eb^t  o5  two  ax^* 

XealdS  70  .YrrcqmOO  fes^  odt  oifit  y®oo^'  lo^tJtoQ^s 

-eloo3  iciitftiq  i1o*jb  bRX  .ebjuxT  j "tilslt  od^  baa  ,va^»<3iAtoO 

nl  ooalt^^iod  lo  etetjoisr  t-rti^  svleoox  Ijne  *8»XJ 

•lOl  XXoa  xXI*u/&d  ftoidw  eetJttOfschOO  rsi  aemli^aoe  ,8«laolJ^ 
eaodv^  lo  el'^iT  ed4  darf. v e^cada'/e  lo  ,xoaoK  [ 

-eaeTC^fil  aolia^itvcat  t>OB  {jclriPlt  ^bssAXUODas  douw  el  s^tadq^t) 

-Xs  rteiJo  yTe'v  mo.t^TlXi  aXo4«  &dl  lo  bocjft' iolldwti  sal  boa  <be 

-if' 

iteooiiv 

btlj  ot  ej^a^'iarbA  daidm  jaUttjaladllw^oii  .II  ^ 

, 'a 

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-tvoxq  6eXjL^■‘i5^c^  ©d^  oJ  jcfttdua  eli««  ad  of  fdpio  1}*^^  y(aai&aoe 


I 


;aiqnaitBfl  ^anlaja’  baJ) 
.citzadf  wBj^adf  ficlatalvFd  bria  s^tTaloel*  zeftsd  edt  %d^  .HI 
at  £©5axtrtj&dili  v^on  x.*^*  anoftieq  rtoue  Dee  ©til  of  baa 

la'aaliJalieiia/J  ioliou-4  j^ni^cawq  xol  sa>^fetxT3  eldaxonod  oaoil 


k i 


36. 


All  of  the  evidence  points  to  the  fact  that  there  has 
been  a well  defined  understanding  of  the  principle  of  limited 
liability  for  the  shareholders  of  corporations  in  England 
since  the  beginning  of  the  fifteenth.  There  is  also  good  reason 
to  believe  that  the  principle  was  much  used  during  that  time 
by  the  Incorporated  companies.  The  cases  point  to  this  conclusion; 


Continued; 

(3)  Be  it  declared  and  enacted  by  the  King’s  most  Excellent 
Majesty,  with  the  Advise  and  Assent  of  the  Lords  Spiritual  and 
Temporal,  and  the  Commons,  in  this  present  Parliament  assembled, 
and  by  the  authority  of  the  same.  That  no  Person  or  Persons 
whatsoever  who  have  adventured  or  put  in,  or  who  hereafter  shall 
adventure  or  put  in  any  Sum  or  Sums  of  Money  in  the  said  East- 
India  Company  or  Guiney  Company,  or  into  any  joint-stock  or 
Stocks  of  Money  by  them  or  either  of  them  made  or  raised  or  to 
be  made  and  raised,  for  and  towards  the  maintaining  and  carry- 
ing on  the  Trade  of  said  East-India  Company  or  Guiney  Company 
managed  or  to  be  managed,  or  who  have  formerly  or  who  shall 
hereafter  adventure  or  put  in  any  Sum  or  Sums  of  Money  into  any 
Stock  or  Stocks  of  Money  for  the  managing  or  carrying  on  of  the 
said  Fishing  Trade,  or  the  Trade  now  called  the  Royal  Fishing 
Trade,  and  shall  receive  and  take  his  or  their  Part  or  Dividend 
of  Fish,  Goods,  or  Merchandise  in  Specie,  and  shall  receive  or 
exchange  the  same,  shall  for  or  by. reason  only  of  such  Adventure 
of  Monies  so  put  into  the  said  East-India  Company  or  Guiney  Com- 
pany, or  into  any  Stock  or  Stocks  for  and  towards  the  said  Fish- 
ing Trade,  or  for  or  by  reason  only  of  the  receiving  and  taking 


idd  €‘‘56*1^  iOJBl  tiU  CX*  ©ifit  lO  "IIA  ^ 

to  dX<jlctii*rq  1©  iiealtel)  XI W ^{ooad 

brtc^IsiiS  rti  aaoXi^TO^ioc  lo  a'lsf^iodexeds  od<f  ‘lot 
no€f>®T:  fcoo9  oeXiKei  ftAi  to  gcirinis®^  'eoflie 

-r  ' X 

69lU  teai/  doitti  «cir  eXqXcutiTq  ^4-~4Mdt 

fixoxoirloiioa  sid^  ^itxlo^  cssaJK^  OdT  ,€©lff®<¥noo  froiAiuilodni  c^^t^ 

ib^citHfaoO 

>-'  ^ 

^n*-I^ox3  tfeom  a*;^iiX2:  od^  xd  b&touexii  i>a£>  6oi«Xo$ij  (8) 

£ifW  XiiU^iiX^B  bLtoJ  ©dj  to  jrteeaA  bac  osIv-txA 

^i>-sXd«©6©«  ^nawAtlxe^  Sa6J?9tq  ^idi  nl  ,axiO£«i:»0  ©dJ'  £in#  ^Iatpi^T 
^ «• 
tfo  noeTO^  on  ^/id'T  <e»a*S6  ed^  "to  tdi 

f XXi.d«  i»#to-ai64  od^  tfo  ^0  iaiL^n*vfe«  ev*d  odw  T87  908i3di» 

-jfti^.3  eu^  {ft  xer.oM  lo  efitpi:  ;0  iurti  X^i*  4l  doq  lo  sttu^nav^ 

%c  xno  Oi^ci  ttiu>-moC  vQrit^  lo 

r,  o^  'lo^ueeXx.t  ro  flsea-  tc  -icd^td  nedX  x^'ctolf  to  aiod^fS 

' i»if©  o-Xaia  add  adt/^Ov  cust>  tot  ,Xio«Xdt  Xa® 

" -n  I 

Xi\tsqou}0  'I®  vm.v?ttO0  PJUit  to  soaiT  ♦dX  fto- joi 

,,  f 

Xl4>ita  Qifw  tc  ftvad  o:ft>  zo  od  of  '^o  te^^tvom 

XiU'.  o^ni  xa®oK  to  bicuB  to  uifltJS  oX  Xp<i  to  diiidir&TJiijji  toilaotod 

. ^ 
ed?  to  (TO  ^ciix^ZBo  to  ode  tot  xonoiX  to  sioodd  lo  aU>o^8 

sotdeil  l6x®^  iaiX.^0  troa  oln«.tT  ©dt  *sO  .aXseiT  fiffXdot*!  Mjea 

t/isfch/Xa  10  d'l*,^  il{>d;t  ro  aid  ojfei  3vt©c.0i  Xlcds  ixi*  '.©fc^rT 

TO  svtscoi  XXfcda  Xits  ^aloac^  uX  0ciijft*i!o*r6V  ro  .aibooO  ^doil  to 

B 

eiPi^nwbA  iioi/9  to  \lno  aoae^  X®  XXaiMia  .cansa  ed?  a^gnsdo^B 

wffoCi  xoaIxfO  TO  x^ffif^DO-  6itnli-^ea2  feXr*«  edi  o;^ai  ^pq  oa  aelooU  to 
-dai'T  XjLbo  sdx  ahTJsmoi  Lab  lot  ajfooeB  lo  icoXB  xa*  00  ni  zo 
^ inXia^  tigs  xnivi&tBi  adit  to  ^0  i*>  lOt  10  t«b«.T  grtl 

'■•*1  "j*!  i' 


27. 


the  secondary  writers  all  agree  that  the  principle  of  limited 
liability  was  known  and  used.  Holdsworth  and  Scott  do  not 
agree  on  the  Act  of  1662.  However,  I am  of  the  opinion  that 
a study  of  the  Act  itself,  even  without  taking  into  consider- 
ation the  legislative  intent  that  may  not  show  in  the  letter 


Continued: 

such  Fish,  Goods  and  Merchandizes  in  Specie,  or  selling  for 
Money,  or  exchanging  the  same  again,  be  adjudged,  taken,  es- 
teemed or  reputed  a Merchant  or  Trader  within  any  Statute  or 
Statutes  for  Bankrupts,  or  to  be  liable  to  the  same. 

IV.  Provided  always,  and  it  is  hereby  declared.  That  every  Per- 
son or  Persons  who  shall  trade,  traffique  or  merchandize  in  any 
other  Way  or  Manner  than  in  the  said  Royal  Fishing  Trade,  or  the 
Trade  managed  by  the  said  East-India  Company  or  the  Guiney  Com- 
pany as  aforesaid,  shall  for  and  by  reason  of  his  and  their  mer- 
Trading,  Traffiquing  and  Merchandizing,  be  liable  to  Commission 
and  Commissions  against  Bankrupts,  as  fully  to  all  Intents  and 
Purposes,  and  not  otherwise,  as  if  this  Act  had  never  been  made; 
any  thing  in  this  Act  to  the  contrary  notwithstanding. 

V.  And  be  it  further  enacted.  That  a Verdict  and  Judgement  in 
Replevin  heretofore  had  or  given  in  the  Term  of  Easter  in  the 
year  one  thousand  six  hundred  fifty- three,  in  the  King's  Bench, 
betwixt  Phinehas  Andrews,  Plaintiff,  Richard  Woodward  and 
William  Meggs,  Defendants,  whereby  Sir  John  Wolstenholrae  Knight, 
an  Adventurer  in  the  said  East-India  Company,  was  adjudged  and 
found  liable  to  a Commission  of  Bankrupts,  only  for  and  by  reason 


of  the  law,  will  bear  out  Scott’s  opinion. 


St 


St 

' 


pfjf  tmil  «iiJ  sr^ri^  6®t:p«  XXjb  e'xe^i’iav  silcf 

- ^1 


;tao  uL  t-nu»  iU»xcir*;feiXc;0  .fct^Etr  rfTt^ttjl  &j($^  iXidslX 

■-tfr 


XArfd*  m>.tai:;jo  ©ci^  Af-  I ^isvetroH  .S^dX  lo  JoA  tidt-.  aQ 

' 

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* ■«  ‘.  ® 
Tfeii-©!  ©ilt  ul  notifi,  ^aa  iAiirf  tv  tdf  pj^fs 

.;v-*'ial*iO  iisc  jMep  li'iw  ^vjil  ed^  tc 


• A »•  • 


: bevaitncO 

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lol  gxrXlXoB  *jo  nl  sei.JtJt;iiiKlo*tei:  X)ii*  acooC  ,d«x^  diHS& 

-a©  ^JfcegXi^tX*  gnXgisedt'Xi  to 


10  *raU5T?  lo  rfnAi<CT©SX  « teioq&t,  to  l^o«©«? 


.SfiijBc  ©d^  ot  ©fQA3/l  acf  70  «iif4oi^-£a  7dt 


^:f  iV! 


— te’I  xiovs  *a/!T  ^L'SOiHoei''  Tft'ei:©!!  it  tJ  &CS  trstsprot4  .VI  ^ ;,^ 


^in&  nl  e£iXfjriailoi.»tB  xfi  ojwpXtis^is  llmriit  odi^  ©«ofe*i©^  iq  floo 

eri^  10  «»fc©iT  ?,oXrt©r*l  Ijiyu^  M©la  ni  oad'd  xemihUt  7lstlia‘C 


•.? 


^00  x©itiL-fr  erfJ-  10  -fiTjBv^JO  *tb£l-das‘?f  i>/i. » ^ ©ftAi? 

ifedJ  im  ©iff  Jo  tax’  iol  Xijbri;  »fcJtiBf©iO?«,  on  \«q 


aoIeslfpisoC  ©X<i/=il  ©0  t5ftl3lifiJaif>i&>4  Xii>«  jaiiiFpXtIjPt  ^ ^galXiStiT 


tp£  IXb  oj  \Iii/%  s€  ^feXqu-iiceS  Ocoii-sjUtfroO 

;fiXxea  neatf  'i©t©n  b£d  iok  hl6i  I'.t  a*  .©otnieiflo  ttoft  fcna 

>.i!  P 

xxJixJr.oo  sxl4  o^  toA.  aldt  ni  ^icW”  ij;ixo 


fiX  Xneosg^iLa  X:  isV  #J  i”©ftT  tatft'iitfit  ^1  cd  'fccA 

..f  , 3 

ni  lOtBfiS  to  HBW?  bds  al  itJivij  to  btti  ©ioIo^bisX  airBlcieii 
jiforea  s’gnrj!  ©rfif  ni  ,soti(v t eT^nifd  xia  hr^^^suodt  «io  laot 
1/01.  Xx^firXoJ&W  Jb'iA.XoiK- ,©w©ii3f?A  r,.edoirirH  ixivtocf 
jtriglitX  e^XOirnotfilolf  niiol  tia  ^s^^iiXcTolfifl  ' flsflilXiW, 

X.jtK  Jyc.'sintJtJ6  ,i^aB«5uoO  ^UbAl-ie^®  Oiiia  ui7  at  xtiiv7iwv^  no 


.iS 


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ao&o©i  tfUB  7ol  ,B^q^*i3teft9  10  ,ioi©©itsjr»oO  A oi»  bauoY 


i ' 


38. 

Conclusion  of  the  Act  of  1663: 

of  a share  he  had  in  the  joint  Stock  of  the  said  Company,  and  a 
pretended  selling  for  Money  Part  of  the  Return  which  he  had  in 
Specie  for  his  said  Adventure,  shall  be  and  is  hereby  declared 
contrary  to  Law,  and  is  hereby  reversed  and  made  null  and  void. 
VI.  Provided  always  and  be  it  enacted.  That  no  Act,  Sale  or  Dis- 
position of  any  of  the  Lands,  Tenements  and  Hereditaments,  Goods, 
Chattels,  Debts  o-r  Credits  of  the  said  Sir  John  Wolstenholme,  or 
any  Distribution  of  the  same,  or  of  any  Money,  heretofore  made 
or  done  by  the  Commissioners  of  Bankrupts,  or  any  claiming  under 
them  or  any  of  them  by  Virtue  or  Colour  of  any  Commission  or 
Commissions  taken  out  against  the  said  Sir  John  Wolstenholme, 
and  whereof  any  Person  or  Persons  is  by  Virtue  or  Colour  of  or 
under  any  such  Act,  Sale  or  Disposition  actually  seized  or 
possessed,  shall  hereby  be  impeached  or  frustrated,  but  that 
the  same  be  enjoyed  for  and  toward  Satisfaction  of  the  Debts 
for  which  the  same  have  been  disposed  or  distributed. 


4’ 

L-'  - 


*S8si  ^0  acA  iDiit  lo  iioiei/XonoO 


— 

£ I'^rtc^woC  j&iea  lo  aCco^S  erfifc  ni  erf  ©'UBrfa  lo 

^ -i  ■ 

flJb  her!  ed  fii>Xdr  erfr  16  >*li**1  iol  tXI&a.^JbetjtaioiQ 

*St 

^ teT^Xce^  Xcff-*toil  si  tna6  &€  lisifo  ^s'ti/d'ntrrJbA  ®ii£  ^ol  sloeqB 

.l>lcv  tea  LLiia  tjvs  r'setrovt#*!  ai  oi 


i^^ 


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^&fcocT5  ^eJnensctXXfjToH  bnfi  ajiflomeiTe"  ^stinAJ  ©jrf^  lo  lo  noltisoq 
TC  ^davIoAocj^'SXoW  n:doT»  t18  blnA  edi  lo  s^lteTD  X-o  e;tdoG  ,BXii!i!’5.riiC 

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TO  ftoi^^airfOiioO  X'JOjCoO  to  en^TiV  a&df  lo  to  «©4X 

1 ^**1 

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L 

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^ j 

t^deG  oo;f  lo  jbT^wCKt  X^hb  toI  od-^soiia^'isMdX 


A 


a 


.X)©XtrcfXiXett  Ta  naeo^xaXJbf  ett/vd  »v©£(  eisuso  9dt  doldv  lol 


29. 

CHAPTER  17. 

With  the  bursting  of  the  South  Sea  Bubble^  in  1720 
corporate  development  received  a set-back  from  which  it  did 
not  recover  in  a little  over  a hundred  years.  During  this 
period  there  was  very  little  corporate  activity  compared  with 
the  years  immediately  preceeding  or  following.  There  was  no 
suivance  made  toward  a more  general  use  of  limited  liability; 
this  came  with  renewed  activity  in  the  corporate  form  of  busi- 
ness organization. 

When  the  corporation  again  came  into  extensive  use, 
near  the  end  of  the  first  quarter  of  the  nineteenth  century, 
limited  liability  seems  to  have  been  the  particular  feature 
for  which  they  were  organized,  A great  controversy  was  carried 
on  in  England  as  to  the  advantages  and  disadvantages  of  this 
corporate  characteristic.  Many  of  the  people  who  were  in  favor 
of  it  wished  to  go  a step  farther  and  have  partnerships  with 
limited  liability,  modeled  after  the  French  partnership  "en 
commandite.”^  This  agitation  was  kept  for  over  fifty  years. 
While  it  did  not  succeed  in  legalizing  the  limited  partner- 

•z 

ship'^  in  England,  it  did  bring  about  great  progress  in  the  dev- 


1-  Scott.  Joint-Stock  Companies  to  1720.  Vol.  I. 

2-  See  the  following: 

M.  A.  Begbie.  Partnership  ”en  commandite."  1848. 
Spencer  Brodhur'st.  Limited  versus  IMlimited  Liability 
in  MacMillan's  Mag.  Nov.  1898.  Vol.  79,  p.  20-29. 

3-  The  limited  partnership  was  not  made  legal  in  England  until 

1907. 


OSVI  rrl  r jWi vt  it'  i..  i>  r. 


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“V 

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il  fcil?  XjelatOQ:  ,Y^iI M*.£I  r.fcJ’iiJ'II 


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V-  '.  'nr-  nt  b^*^7•:o"cr  Sl’qv  \ ,:  t\d  blJ:  tt  ni 


. Tov  .CL-TI  o.*-  j'fctoflqjcor  :(oo^r.~.-^a.toT  ~X 

. c.  t-.'^  d8t.  -r 

— ” . •; .t  ii.iT{£jijinc-'’  no''  .cj'. ''• 

bfc? iir c^i-yrev  te.ttcitJ  ztf-roqa 

“X-Ct:  ,q  .ioY  . - . . t?r  . . • ■■  . iM;.  ‘ 

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. oe  x 


30. 

elopraent  of  complete  limited  liability  for  corporations. 

George  Dodd,  writing  in  1865,  summarized  the  progress 
of  the  limited  liability  system.  As  the  Act  of  1844  is  the 
first  one  to  receive  much  consideration  at  the  hands  of  the 
writers  of  the  Law  Records,  Abridgements,  etc.,  the  first  part 
of  his  article  will  be  included  here.  He  says,  "As  long  ago  as 
1826  an  Act  was  passed,  empowering  the  Crown  to  confer  charters 
of  incorporation  on  certain  trading  and  other  companies,  de- 
claring in  the  charter  some  limit  to  the  liability  of  the  share- 
holders. As  this  was  a favor,  specially  shielding  the  share- 
holders from  that  unlimited  liability  which  would  otherwise 
rest  on  them,  it  was  understood  that  the  companies  thus  fa-^ored 
ought  to  be  more  than  usually  advantageous  to  the  public.  In 
1834  an  Act  declared  that  ’divers  companies  associate  themselves 
together  for  trading,  charitable,  literary,  or  other  purposes, 
which  it  would  be  inexpedient  to  incorporate  by  royal  charters, 
although  it  would  be  expedient  to  confer  upon  them  some  priv- 
ileges incident  to  corporations; ’ thereupon  the  Crown  was  em- 
powered to  grant  Letters  Patent  to  such  exceptional  companies. 
Shareholders’  liability  was  to  be  limited  not  in  amount,  but  in 
time,  terminable  when  they  had  for  three  years  ceased  to  be 
shareholders.  In  the  same  year  a particular  statute  placed  on 
an  improved  basis  the  conditions  for  investing  small  sums  in 
friendly  societies,  and  insuring  honesty  in  their  management. 

In  1836  was  passed  an  Act  relating  to  Benefit  Building  Societies. 
Such  societies  had  before  existed;  but  this  statute  legalized 
and  encouraged  them,  and  applied  many  provisions  of  the  Friend- 
ly societies’  Act  to  them.  The  shares  were  not  to  exceed  100  1. 


I 


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iTiS 


31. 

each,  and  the  payments  to  exceed  1 1.  per  month.  The  society  was 
to  but  or  build  houses,  and  to  hold  them  as  mortgages  till  all 
the  instalments  were  paid  15).  The  kind  of  liability  was  the  same 
as  in  friendly  societies.  In  1837  was  held  one  of  many  Perlia^ 
mentary  Conunittees^,  to  inquire  whether  it  would  be  safe  to 
sanction  the  principle  of  limited  liability  in  trade,  more  or  less 
on  the  basis  of  the  French  societes  commandite;  much  useful  in- 
formation was  collected  and  published,  but  the  committee  did  not 
make  any  definite  recommendations.  In  the  same  year  was  passed 
an  Act  for  enabling  the  Crown  to  confer  certain  powers  and  im- 
munities on  trading  and  other  companies,  in  the  form  of  charters 
of  limited  liability.  The  first  to  avail  themselves  of  this  priv- 
ilege was  the  Commercial  Steam  Navigation  Company,  for  running 
steamers  from  London  to  the  Channel  Islands,  France,  and  Spain. 

In  1841  an  Act  was  passed,  not  immediately  effecting  liability, 
but  strengthening  the  security  of  Banks  of  Issue;  the  banks  were 
required  to  'make  up  just  and  true  weekly  accounts  of  the  average 

amount  of  notes  in  circulation,  ' and  in  other  ways  to  give  pub- 

2 

licity  to  their  proceedings. ” 

■7 

In  1844  was  passed  the  Con^anies  Act  which  applied  to 
every  joint  stock  company,  as  defined  in  the  Act,  in  England, 


1-  These  committee  reports  are  given  in  M.  A.  Begbie's  Partner- 

ship ”en  commandite. ”,  Appendix  B,  p.  335. 

2-  Geo.  Dodd.  Progress  of  the  Limited  Liability  System.  In  the 

British  Almanac,  1865.  Volume  79. 

3-  7 & 8 Viet.  c.  110. 


V t-  ;‘f»oa  \L  *'  . <■  .1  ■ Jf-Jfceox©  tSv  CJ  1 ftfi.  I 

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33. 

or  Ireland,  or  in  Scotland,  if  they  had  an  office  or  place  of 
business  in  any  other  part  of  the  united  Kingdom,  established 
for  "any  commercial  purpose,  or  for  any  purpose  of  profit,  or 
for  the  purpose  of  assurance  or  insurance,  with  certain  ex- 
ceptions viz.,  banking  ooii?)anie8,  schools,  scientific  and  lit- 
erary institutions,  and  also  friendly  societies,  loan  societies, 
and  benefit  building  societies,  respectively  duly  certified 
and  enrolled  under  the  statutes  in  force  respecting  such  societies, 
other  than  such  friendly  societies  as  grant  assurances  on  lives 

to  the  extent  specified  in  the  Act The  Act  did  not,  except 

where  expressly  made  applicable,  apply  to  partnerships  existing 
before  November  1,  1844,  or,  except  as  specially  provided,  to 
any  company  for  executing  such  works  as  bridges,  canals,  reser- 
voirs, railways,  harbours,  and  the  like,  which  could  not  be  ex- 
ecuted without  Parliamentary  Authority,  or  (except  as  specially 
provided. ) to  any  company  incorporated  by  statute  or  charter,  or 
to  any  company  authorized  by  statute  or  letters  patent  to  sue 
or  be  sued  in  the  name  of  some  officer  or  person,"^  The  liability 
was  less  than  before  but  the  shareholder  was  still  liable  for 
three  years  after  he  had  sold  his  shares.  This  limitation  in 
time  was  practically  the  only ’:benef it  of  this  Act  as  far  as 
liDjited  liability  is  concerned.  It  did  bring  about  a more  uniform 


1-  Earl  of  Halsbury.  The  Laws  of  England,  Vol.  Y. , p.  25. 

See  also: 

G,  H.  Lewis.  Liabilities  Considered,  Chap.  II  & III. 
Geo.  Dodd.  Progress  of  the  Limited  Liability  System. 
In  the  British  Almanac,  1865.  p.  104. 


10  L 


i.Si  CiL>c  r:i  to  ^to^iXciI  io 


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- «c-Xik't,/?ox dr^XiiTi  *>i..‘  iix 


33. 


system  and  served  to  hasten  more  direct  legislation  in  regard  to 
the  liability  of  the  members  of  corr^anies. 

In  the  next  year,  1845,  was  passed  the  Compaines  Clauses 
Consolidation  Act^  which  applied  to  a certain  group  of  corpor- 
ations, viz.,  those  for  carrying  on  or  undertaicing  enterprises 
of  a public  nature.  It  was  to  apply  to  all  such  corr5)anies  incor- 
porated by  Acts  thereafter  passed.  The  execution  against  stock- 
holders was  limited  to  the  extent  of  their  shares  of  capital 
not  fully  paid.  Practically  every  account  of  the  development  of 
the  system  of  limited  liability  of  stockholders  of  incorporated 
companies  leaves  the  Act  of  1845  out  of  their  account.  One  or 
two  of  them  refer  to  it  as  having  been  passed  in  that  year,  but 
say  nothing  about  it.  It  appears  to  me  that  this  was  a definite  s 
step.  It  not  only  gives  complete  limited  liability  but  provides 
that  this  Act  shall  apply  to  all  other  companies  of  a similiar 
nature  to  be  incorporated  by  future  Acts,  The  following  extracts 
from  the  law  itself  will  bear  this  out:  ”If  any  execution,  either 
at  law  or  in  equity,  shall  have  been  issued  against  the  company, 
and  if  there  cannot  be  found  sufficient  whereon  to  levy  such 
execution,  then  such  execution  may  be  issued  against  any  of  the 
shareholders  to  the  extent  of  their  shares  respectively  in  the 

O • 

capital  of  the  company  not  then  paid  up*^‘  provided  always,  that  no 
such  execution  shall  issue  against  any  shareholder  except  under  an 
order  of  the  court  in  which  the  action,  suit,  or  other  proceeding 
shall  have  been  brought  or  instituted,  made  upon  motion  in  open 


1-  8 & 9 Yict.  c.  69. 

2-  The  underlinings  are  my  own. 


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‘'■''  ■ '*  " — ^'1 


34. 


court  after  sufficient  notice  in  writing  to  the  persona  sought  to 
be  charged;  and  \5>on  such  motion  such  court  may  order  execution 
to  issue  accordingly,  and  for  the  purpose  of  ascertaining  the 
names  of  the  shareholders  and  the  amount  of  capital  remaining  to 
be  paid  i:pon  their  respective  shares,  it  shall  be  lawful  for  any 
person  entitled  to  such  execution  at  all  reasonable  times  to  in- 
spect the  register  of  the  shareholders  without  fee If  by 

any  means  such  execution  shall  have  caused  any  shareholder  to 
pay  any  sum  of  money  beyond  the  amount  then  due  from  him  in  re- 
spect of  calls,  he  shall  forthwith  be  reimbursed  such  additional 
sum  by  the  directors  out  of  the  funds  of  the  company Com- 

panies hereafter  created  by  special  Act  must  not  conflict  with 
this  Act. 

The  Acts  of  1844  and  1845  marked  the  beginning  of  further 
serious  discussion  of  the  extension  of  the  principle  of  limited 
liability.  In  1844  another  Parliamentary  Committee  collected 
evidence  on  the  question  but  made  no  recommendations.  In  1851  a 
Committee  of  the  House  of  Commons  attempted  another  investigation 
and  ended  by  recommending  that  the  Crown  ^point  a commission  to 
investigate  the  whole  question  of  limited  liability.  In  1852  an 
Act  was  passed  encouraging  industrial  and  provident  institutions. 
This  Act  gave  them  partial  limitation  of  liability  for  their 
shareholders.  The  next  year  the  Crown  appointed  the  commission 
that  had  been  recommended  by  the  House  of  Commons.  The  results  of 
this  commission  are  very  instructive  and  show  the  importance  that 
was  attached  to  the  principle  in  question  as  well  as  the  conflict- 
ing opinions.  'The  commission,  composed  of  Judges,  barristers, 

1-r  Chitty's  Statutes  of  the  Realm.  Vol,  II. 


. rC 


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35. 

and  conunercial  men,  addressed  queries  to  leading  persons  in  most 
European  countries  concerning  the  practical  working  of  the  com- 
mandite, or  limited  liability  principle;  and  they  also  examined 
commercial  men  at  home.  They  framed  a series  of  thirty-one  quest- 
ions, and  sent  printed  circulars  relating  to  them  to  ninety  in- 
fluential and  experienced  persons  in  the  United  Kingdom  and  Am- 
erica, and  to  twenty  Chambers  of  Commerce.  Seventy-five  answers 
were  received;  and  the  commissioners  were  not  a little  embarass- 
ed  by  the  result.  "Gentlemen  of  great  experience  and  talent  have 
arrived  at  conclusions  diametrically  opposite;  and  in  supporting 
their  conclusions,  have  displayed  reasoning  powers  of  the  high- 
est order.  It  is  difficult  to  say  on  which  side  the  weight  of 
authority  in  this  country  preponderates. " Then,  to  ascertain  the 
opinions  of  foreigners  on  the  actual  working  of  the  commandite 
system,  the  commissioners  freimed  a circular  of  fifteen  questions 
in  French,  and  sent  copies  of  it  to  twenty-two  firms  and  individ- 
uals. Of  the  result  they  say,  "The  opinions  received  from  foreign 
countries  preponderate  in  favor  of  limited  liability;  but  many 
of  the  foreign  correspondents,  while  bearing  testimony  to  the  ben 
eficial  operation  of  the  law  as  to  partnerships  with  limited 
liability  in  their  own  countries,  suggest  that  it  may,  neverthe- 
less, well  be,  that  the  circumstances  of  the  trading  interests 
of  the  United  Kingdom  may  give  it  a very  different  operation 
there. " When  such  men  as  Lord  Ashburton,  Mr.  Norman,  Mr.  Frances 
Baring  and  Mr.  Nassau  Senior  pronounced  for  limited  liability, 
and  Lord  Overstone,  Mr.  Tooke,  Mr.  Larpent,  and  Mr.  Harsley  Palm- 
er, against  it,  it  is  no  wonder  that  the  commissioners  found  un- 
animity of  opinion  among  themselves  to  be  unattainable;  they 


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36. 

divided  in  the  ratio  of  five  to  three  against  limited  liability.'^ 

In  1854  a return  to  the  House  of  Commons  showed  that 
since  1837  there  had  been  164  applications  for  the  charters  of 
limited  liability  that  existing  statutes  empowered  the  Crown  to 
grant  under  special  circumstances.  Of  this  number  of  applications 
ninety  had  been  granted.  Some  of  the  companies  receiving  them  were: 
the  Royal  Mail  , Steamship  , the  Great  Eastern  Ship,  the  Peninsular 
and  Oriental  Ship,  the  Society  of  Arts,  the  Great  Exposition  of 
1851,  the  Panoptican,  the  Crystal  Palace,  the  General  Theatrical 
Fund,  together  with  gold,  banking,  and  electric  telegraph  com- 
panies. 

The  demand,  by  this  time  was  so  great  that,  in  1855 
two  bills  were  brought  before  Parliament;  one  relating  to  part- 
nerships, and  one  relating  to  con^anies.  The  former  failed;  the 
second  was  passed.  By  this  Act^  any  joint  stock  company  formed 
after  the  going  into  effect  ,of  this  law,  with  a capital  divided 
shares  of  a nominal  value  of  10  1.  each,  or  any  solvent  joint 
stock  company  already  registered  under  the  Companies  Act  of  1844, 
or  constituted  under  any  private  Act  of  Parliament,  was  enabled 
to  obtain  a certificate  of  complete  registration  with  limited 
liability  on  complying  with  the  Act.  Assurance  companies  were 
expressly  excluded  by  this  Act. 


3-  18  & 19  Viet.  c.  133. 

See  Earl  of  Halsbury.  Laws  of  England.  Vol.  V.  p,  25. 
Geo.  Dodd.  Progress  of  the  Limited  Liability  System. 

1-  Same  as  last  reference  above. 


I } . 


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37. 

A year  later,  in  1856  a Joint  Stock  Companies  Act^ 
was  passed  which  repealed  the  Companies  Act  of  1844^  and  an 
Act^  slightly  amending  it  and  the  Limited  Liability  Act  of  1855^ 
but  provided  that  the  repeal  should  not  take  effect  in  regard 
to  any  company  completely  registered  under  the  Act  of  1844  un- 
til such  company  had  obtained  the  registration  mentioned  in  the 
Act.  It  was  further  provided  that  every  company  registered  un- 
der the  Act  of  1844  should  register  itself  as  a company  uhder 
the  Act  of  1856  either  with  or  without  limited  liability. 

Other  companies  duly  constituted  by  law  before  the  Act  of  1856 
and  having  seven  or  more  members  might  at  any  time  thereafter 
do  likewise.  In  ePther  case  registration  with  limited  liability 
was  allowed  only  when  the  company  had  obtained  it  under  the 
Limited  Liability  Act  of  1855,  or  had  obtained  the  assent  of  a 
certain  majority  of  its  shareholders.  Banking  and  'Assurance 
companies  were  excluded  from  the  advantages  of  this  Act.  With 
these  exceptions  any  seven  or  more  persons  might  associate  for 

any  lawful  purpose  by  signing  a memorandum  of  association,  and 
complying  with  the  other  requirements,  form  themselves  into  a 

company  with  or  without  limited  liability.  Registration  was 
effected  with  the  Registrar  of  Joint  Stock  Companies,  who  gave 
a certificate  of  incorporation  to  the  company,  which  thereupon 


1-  19  & 20  Viet.  c.  17. 

2-  7 & » Viet.  110. 

3-  Stat.  10  & 11  Viet.  c.  78. 

4-  18  &19  Viet  c.  133. 

These  Acts  are  given  in  detail  in  Earl  of  Halsbury.  Laws  of 
England.  Vol.  V.  p.  25  -- 


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38. 

became  a body  corporate,  with  perpetual  succession,  a common 
seal,  power  to  hold  lands,  and  limited  liability. 

The  Joint  Stock  Companies  Act  of  1857^  repealed  the 
Act  of  1856  but  ”it  was  provided  that  the  three  Acts^  which 
had  been  repealed  should  be  deemed  to  have  been  and  still  to 
remain  unrepealed  as  to  any  company  completely  registered  which 
had  not  obtained  registration  under  the  Act  of  1856,  until  the 
company  obtained  registration  under  the  Acts  of  1856  and  1857, 
after  which  they  should  be  repealed  as  to  such  company.”  This 
Act  also  enabled  seven  or  more  shareholders,  with  a fixed  cap- 
ital in  shares,  to  register  with  the  Act  either  with  or  without 
limited  liability.  If  the  liability  was  not  already  limited, 
certain  assents  had  to  be  obtained  in  lOrder  to  register  with 
limited  liability.  This  Act  systematized  the  whole  problem  of 
liability  by  providing  that  if  after  July  13,  1857  more  than 
twenty  persons  were  engaged  in  a partnership  business  for  profit, 
each  of  them  should  be  liable  for  the  whole  debts  of  the  part- 
nership unless  they  were; 

1-  A company  registered  under  the  Act  of  1856. 

2-  A company  incorporated  or  otherwise  legally 
constituted  by  or  in  accordance  with  some  Act 
of  Parliament,  royal  charter,  or  letters  patent. 

3-  A company  engaged  in  working  mines  in  the  Stannories 
Jurisdiction. 


1-  20  & 21  Viet.  c.  14. 

2-  1844  (7  & 8 Viet.  c.  110.)  1855  (18  & 19  Viet.  c.  133.) 
1856  (19  & 20  Viet.  c.  47.  ) 


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39. 


All  companies,  whether  they  had  limited  liability  or  not,  except 
insurance  con5)anies,  must  be  registered  under  the  Acts  of  1856 
or  1857  before  November  3,  1857.  If  they  were  not  so  registered, 
they  would  be  incapable,  until  registered,  of  sueing  or  paying 
dividends;  and  their  directors  and  managers  would  be  liable  to 
penalties.  The  default,  however,  would  not  render  the  con^^any 
illegal. 

Banking  companies,  by  another  Act^,  were  brought  under 
the  operation  of  the  Joint  Stock  Companies  Act  of  1857,  in  that 
same  year,  but  were  not  given  limited  liability.  This  feature, 

p 

except  as  to  notes,  was  given  them  by  a subsequent  Act  . 

3 

Other  Acts  have  been  passed  making  changes,  improv- 
ing certain  means  of  proceedure,  repealing  former  laws  and  sub- 
stituting new  ones  in  their  places.  In  all  cases  there  has  been 
no  tendency  to  weaken  the  principle  of  limited  liability. 

From  the  above  Acts  it  is  evident  that  the  principle 
of  limited  liability  has  been  recognized  by  statute,  in  England, 
to  some  extent  , at  least,  since  the  beginning  of  the  second 
quarter  of  the  nineteenth  century.  Since  that  time  there  has 
been  staedy  progress  in  extending  and  improving  the  principle 
until,  by  the  Act  of  1857,  any  seven  or  more  persons  engaged 


1-  19  & 20  Viet.  c.  47.  s.  2. 

2-  Stat.  21  & 22  Viet.  91. 


3-  1862  — 

25 

& 

26 

Viet.  c. 

89. 

1867  — 

30 

& 

31 

Viet.  c. 

131. 

1900  — 

63 

& 

64 

Viet.  48. 

1907  — 7 Edw.  7.  c.  50. 

1908  — 8 Edw.  7.  c.  69. 


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40. 

in  a business  for  profit  may  form  themselves  into  a corporation 
with  limited  liability  and  any  twenty  or  more  persons  so  employ- 
ed must  so  constitute  themselves  or  be  considered  a partnership 
in  which  each  member  will  be  held  liable  for  the  debts  of  the 
who  le . 

The  whole  movement  for  the  protection  of  the  individ- 
ual members  of  incorporated  companies  may  be  summed  up  as 
follows;  (l)  Since  the  fifteenth  century  the  members  of  in- 
corporated companies  have  been  given  protection,  beyond  their 
fully  paid  shares  of  stock,  by  the  common  law.  (2)  Since  the 
middle  of  the  nineteenth  century  stockholders  have  been 
allowed  limited  liability  by  statute. 


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41. 

CHAPTER  V. 

From  1777  to  about  1796  most  of  the  session  laws  of 
New  York  state  were  concerning  constitutional  questions,  the 
organization  of  the  subdivisions  of  that  state,  and  the  dev- 
elopment of  a system  of  laws.  During  this  time,  and,  especially 
after  1795  many  road  and  turnpike  conqpanies  were  incorporated. 
There  were  hundreds  of  these  incorporations  but  in  none  of 
them  is  the  question  of  limited  liability  mentioned.  They  were 
given  the  right  of  eminent  domain  and  all  of  the  other  character- 
istics of  a corporation.  These  characteristice  were  so  carefully 
enumerated  and  the  separate  personality  made  so  plain  that  I am 
convinced  they  took  the  existence  of  limited  liability  for  grant- 
ed; they  understood  that  it  was  of  the  "essence  of  incorporation." 
There  are  several  things  that  caused  me  to  come  to  this  con- 
clusion: (l)  The  acts  of  incorporation,  in  the  early  session 
laws  of  New  York  state,  bring  out  the  nature  of  a corporation 
so  perfectly  that  unlimited  liability  seems  inconsistent  with 
it.  (3)  The  legal  writers  maintain  that  this  principle  was  under- 
stood by  the  people  of  that  time.^  (3)  The  New  York  Chamber  of 
Commerce  was  incorporated  by  the  English  Crown  under  Letters 
Patent;  In  the  5th.  session  of  the  New  York  legislature  they 
were  re- incorporated  with  all  of  the  rights  and  privileges  of 
their  first  incorporation,  and  incorporations  by  letters  patent 
carried  limited  liability  of  the  members.  (4)  The  common  law 
of  England  was  made  the  basis  of  law  in  New  York  and  the  early 
states,  and  the  English  common  law  recognized  the  limited 
liability  of  shareholders  as  one  of  the  features  of  a corpor- 

Kent's  Commentaries.  Vol.  II. 


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42. 

ation.  (5)  When  the  manufacturing  corporations  bacarae  common, 
limited  liability  was  one  of  the  features  mentioned  in  the  acts 
incorporation  them.  There  is  nothing  to  indicate  that  there  was 
any  change  in  legislative  policy  at  this  time.  It  seems  to  have 
been  merely  a case  of  stating  what  already  existed.  (6)  There 
are  a few  cases,  which  will  be  discussed  later,  in  which  the 
corporators  were  made  liable  in  their  individual  and  private 
capacities.  As  these  cases  occured  before  the  time  when  limited 
liability  came  into  questioniin  New  York  state  (1825),  the  mere 
fact  that  it  was  necessary  to  mention  that  they  were  to  be 
liable  in  their  individual  and  private  capacities  seems  to  in- 
dicate, that  if  this  were  not  mentioned,  the  corporators  could 
not  be  so  held. 

At  the  end  of  the  eighteenth  century  this  principle 
was  being  mentioned  along  with  the  other  corporate  privileges. 
The  stockholders  of  the  Manhattan  Company  for  sij^jp lying  the 
city  of  New  York  with  pure  and  wholesome  water  were  liable  for 
calls:  "all  such  sums  of  money  by  them  subscribed  or  to  be  sub- 
scribed. " There  is  nothing  in  the  act^  to  indicate  that  the 
subscribers  or  stockholders  could  be  held  for  more,  either  by 
the  directors  or  by  creditors,  and  the  wording  of  the  act 
seems  to  imply  that  they  could  not  be  held  responsible  beyond 
their  paid  up  shares. 

An  interesting  act  was  passed  April  28,  1786  by  the 
legislature  of  New  York.  This  is  made  a strong  argument,  by 
J.  S.  Davis^,  to  prove  that  limited  liability  existed  early. 

1-  Laws  of  New  York.  1797-1800.  Vol.  IV.  p.  433. 

2-  Essays  in  the  Earlier  Hist,  of  Am.  Corporations. 


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43. 

He  states  that  the  legislature  of  the  state  of  New  York  gave  lim- 
ited liability  to  a company  that  was  not  even  incorporated:  "The 
Associated  Meuiufac taring  Iron  Company  of  the  City  and  County  of 
New  York  was  granted. ...  limited  liability  for  seven  years  *for 
debts  contracted  in  the  company  name,  provided  that  a duplicate 
of  the  subscription  agreement  and  an  up-to-date  list  of  subscrib- 
ers, with  their  holdings,  should  be  filed  within  four  months  and 
kept  on  file  in  the  office  of  the  clerk  of  the  city  and  county.* 
Whether  incorporation  was  even  sought  is  doubtful.  Clearly  it  was 
not  granted."  It  is  true  that  this  was  not  an  incorporated  com- 
pany; it  is  also  true  that  incorporated  companies  were  enjoy- 
ing the  advantages  of  limited  liability  at  that  time,  but  there 
is  some  doubt  as  to  whether  or  not  the  legislature  granted  lim- 
ited liability  to  the  members  of  this  unincorporated  company, 
as  that  term  is  usually  understood.  The  act  reads  as  follows: 
"Whereas  Samuel  Ogden,  William  Constable,  William  Neilson,  Solo- 
mon Simpson,  Alexander  Stewart  and  others,  have  represented  that 
they  are  disposed  to  associate  themselves  by  the  name  of  'The 
Associated  Manufacturing  Iron  Company  of  the  City  and  County  of 
New  York'  for  the  purpose  of  promoting  the  manufacturing  of  iron 
in  this  State;  Therefore,  Be  it  enaoted  by  the  people  of  the  State 
of  New  York  represented  in  Senate  and  Assembly,  and  it  is  hereby 
enacted  by  the  authority  of  the  same.  That  the  said  Samuel  Ogden, 
William  Constable,  'William  Neilson,  Solomon  Simpson,  Alexander 
Stewart  euid  others  their  associates,  shall  severally  and  respect- 
ively be  liable  for  every  debt  contracted  on  the  credit  of  the 
said  company  by  the  name  aforesaid,  for  the  special  purposes  of 
promoting  the  manufacturing  of  iron,  in  such  proportion  of  the 


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'xetaaxelA  ,cooq?ii8  accioXoB  ^r.oeSlot  ic4lXil4  ^eic^Saacb  B#iXXXff 
-tos^eet  £ina  yXX^im'Os  iXada  «&&XaiooeajQ  iXod^  i'lAwatfe 

. I 

tdv  to  ^iiiSio  BdS  no  Latd&ztnov  toob  \%uv^  tct  fflosll  orf  ylcTl 

I ' ' i ■ • .; 

Ic  eeaocyii/q  Xeloe<.re  arf*  lOt  .ctsaaTota  otabn  edt  yd  yiia^j^oc.  X>iaa 
ed^  to  ooX^ioqoTq  doua  flrJt  to  ^ultuSofiYiuip^^  on? 


44. 

whole  of  the  said  debts  from  time  to  time  contracted  on  the  credit 
of  the  said  company,  as  his  or  her  subscription  or  stock  shall 
bear  to  the  whole  amount  of  the  stock  of  the  said  company,  with- 
out regard  to  the  sume  by  the  said  copartners  respectively  paid 
for  the  discharge  of  any  other  debts  by  the  said  company  contrast- 
ed: and  that  such  persons  composing  the  said  company,  shall  not 
jointly  liable  for  the  discharge  of  such  debts,  beyond  the  whole 
stock  of  the  company;  any  law,  usage  or  custom  to  the  contrary 
thereof  notwithstanding.  Provided  always.  That  a duplicate  of  the 
original  articles  of  agreement  subscribed  by  all  the  persons  com- 
posing such  company  and  particularly  specifying  the  shares  and  am 
amount  in  value  thereof,  of  each  of  them,  in  the  said  stock  of  the 
company,  shall  within  four  months  after  the  passing  of  this  act 
be  filed  in  the  office  of  the  clerks  of  the  city  of  New  York,  to 
which  di^^licate  every  person'*^  shall  from  time  to  time  be  of  the 
said  company  shall  from  time  to  time  subscribe  his  or  her  name, 
and  specify  his  or  her  share  in  the  stock  of  the  said  company, 
and  no  person  whose  name  shall  not  be  signed  to  the  said  dupli- 
cate agreement  filed  in  the  clerks  office  shall  receive  any  ben- 
efit from  the  provisions  of  this  act. 

And  be  it  further  enacted  by  the  authority  aforesaid.  That 
this  act  shall  be  in  force  for  the  term  of  seven  years  and  no 
longer. 

There  is  one  thing,  above  all  others  that  this  act  does 
show,  and  that  is,  that,  from  this  time  on,  the  legislature  no 
longer  omits  comment  on  liability.  It  is  made  limited  or  unlim- 
ited by  statute,  in  most  cases  hereafter.  At  any  rate,  the  leg- 

1-  Laws  of  New  York.  VoU  II,  p.  395. 


ryjtec. 


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45. 

islature  states  its  position  often  enough  to  leave  no  doubt  as  to 
the  status  of  liability,  by  statute,  at  any  particular  time.  Of 
course,  there  is  a conflict ’obetween  statute  and  common  law  when- 
ever stockholders  are  made  liable  in  their  individual  and  private 
capacities  for  the  debts  of  incorporated  companies. 

An  act  was  passed  March  30,  1797  to  incorporate  the  stock 
holders  of  the  Hamilton  Manufacturing  Society.  The  Act  contains 
this,  "Provided  always  that  nothing  in  this  act  contained  shall 
be  taken  or  construed  to  exonerate  the  members  of  the  said  cor- 
poration from  any  debts  which  may  hereafter  be  incurred  by  the 
directors  thereof,  but  that  each  and  every  of  the  members  thereof 
shall  be  liable  to  be  prosecuted  to  judgement,  in  his  individual 
capacity,  for  any  debt  due  from  the  said  corporation  whomsoever."^ 

J,  S.  Davis^  states  that  this  is  "the  only  Instance  of 
this  kind  that  I have  seen  among  the  corporate  charters. " He  is 
evidently  speaking  of  the  early  corporate  charters  and  his  state- 
ment holds  true  until  about  1825  when  there  was  a reaction  against 
the  principle  of  limited  liability  and  almost  all  new  incorporat- 
ions, for  a time,  were  made  fully  liable. 

Nothing  further  is  heard  of  this  company  and  it  probably 
never  went  into  operation.  The  fact  that  this  is  the  only  case  of 
its  kind  among  the  early  incorporations,  and  the  fact  that  they 
so  clearly  state  that  they  must  be  liable,  is  further  indirect 
proof  that  this  case  was  unusual,  a departure  from  the  regular 
policy  of  the  time. 

In  this  connection,  J.  S.  Davis  has  another  interesting 


1-  Laws  of  New  York.  20th.  Session. 

2-  J.  S.  Davis.  Earlier  Hist,  of  Am.  Corporations.  See  Index. 


OS’  idt'oA  ctf  svf  ftX  no^^o  rtoi^ico-f 


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46. 

illustration,  and  some  reraarke  that  agree  with  the  statement  that 
I made  above^  about  the  English  common  law  being  the  basis  of 
liability  in  this  country  and  limited  liability  being  taken  for 
granted.  He  says,  "In  the  absence  of  general  statutes  and  decis- 
ions, it  is  necessary  to  turn  to  the  specific  acts  of  incorpor- 
ation to  discover  details  of  the  public  policy Limited 

liability  was  recognized  as  an  attribute  of  an  incorporated  com- 
pany, almost  invariably  without  specific  mention;  indeed  it  was 
a principal  object  desired  through  incorporation.  A subscriber  to 
the  Bank  of  New  York,  in  1784,  refused  to  pay  his  subscription 
when  the  legislature  denied  a charter,  saying:  ’When  the  regu- 
lations were  published  and  agreed  upon,  it  was  stipulated  that 
no  subscriber  should  be  liable  for  more  than  his  stock.  This  pre- 
supposes the  grant  of  a charter;  for,  without  it,  this  article 
could  not  take  effect;  should  the  subscription  money  be  at  pres- 
ent paid  in,  the  stockholders  become  to  all  interests  and  pur- 
poses bankers,  and  every  man  is  liable  — for  all  the  engagements 
of  the  bank  to  the  extent  of  his  whole  fortune. ’ In  the  petition 
of  the  directors  of  the  bank  for  a charter  in  July,  1789,  it  is 
stated:  ’That  standing  on  the  footing  of  a private  company,  in 
which  each  and  every  member  is  supposed  to  be  personally  liable 
for  all  the  engagements  entered  into,  it  has  been  found  that 
many  persons  who  would  otherwise  be  desirous  of  becoming  subscrib- 
ers, are  deterred  by  that  circumstance  from  doing  it;  whereby  the 
increase  of  the  stock  of  the  bank  is  obstructed  and  the  operations 
proportionately  confined. ’ In  the  single  instance,  that  of  the 
Hamilton  Manufacturing  Society,  New  York,  1797,  was  this  limitation 

1-  Supra,  page  41. 


,oi> 


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47 


of  liability  refused  tp  a corporation." 

Limited  liability  continued  to  be  a feature  of  the  in- 
corporations until  near  the  beginning  of  the  second  quarter  of 
the  nineteenth  century.  An  act  passed  in  1811  to  incorporate  the 
Clinton  Woollen  Manufacturing  Society  of  the  County  of  Oneida 
may  be  taken  as  representative  of  the  legislation  of  the  first 
quarter  of  the  nineteenth  century.  This  act  contained  the  follow- 
ing: 

"VIII.  And  be  it  furthermore  enacted.  That  for  all  debts 
which  shall  be  due  and  owing  by  the  said  company,  the  per- 
sons composing  the  said  corporation  at  the  time  of  its 
dissolution,  shall  be  responsible  in  their  individual  and 
private  capacity  to  the  extent  of  their  respective  shares, 
and  no  further,  on  any  suit  or  action  to  be  brought  or 
prosecuted  after  the  dissolution  of  the  said  corporation. " 
Some  of  the  other  acts  that  were  passed  during  the  34th.  session 
of  the  legislature  of  New  York,  containing  the  same  provision, 
are: 

An  ACT  to  incorporate  the  Somerstown  Manufacturing  Society. 

Passed  February  32,  1811. 

An  ACT  to  incorporate  the  James ville  Iron  and  Woollen 
Factory.  Passed  March  8,  1811. 

An  ACT  to  incorporate  the  Stockholders  of  the  New  York 
Sugar  Refining  Company,  Passed  March  22,  1811. 

An  ACT  to  incorporate  the  Chenango  Manufacturing  Society 
in  the  County  of  Chenango,  Passed  April  3,  1811. 

An  ACT  to  incorporate  the  Stockholders  of  the  Columbian 
Lead  Mine  Company.  Passed  ^ril  5,  1811. 


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I 


48. 

An  ACT  to  incorporate  the  Cornwall  Cotton  Con?)any. 

Passed  April  8,  1811. 

An  ACT  to  incorporate  the  Oldenbomeveld  Manufacturing 
Company.  Passed  i^ril  9,  1811. 

An  ACT  to  incorporate  the  Montgomery  Manufacturing 
Society.  Passed  i^ril  9,  1811.^ 

Some  of  the  acts  passed  during  the  35th.  session  of  the  legis- 
lature were: 

An  ACT  to  incorporate  the  Ulster  Lead  Mining  and  Manufactur- 
ing Company.  Passed  June  1,  181S. 

An  ACT  to  incorporate  the  Stockholders  of  the  Dutchess 

County  Slate  Company.  Passed  June  8,  1813. 

An  ACT  to  incorporate  the  Onondaga  Manufacturing  Company 

Passed  June  9,  1812. 

This  company  was  placed  under  one  special  liability.  In  addition 
to  the  above  mentioned  clause,  its  act  of  incorporation  contain- 
ed this:  "And  be  it  further  enacted,  That  it  shall  and  may  be 
lawful  for  the  president  and  directors  of  the  Onondaga  Manufac- 
turing Company,  or  their  successors  in  office,  to  erect  a grist- 
mill for  the  use  and  benefit  of  the  said  company:  Provided,  That 
the  individuals  composing  said  company  shall  at  all  times  here- 
after be  responsible,  both  in  their  individual  and  corporate 
capacity,  for  all  debts  contracted  in  erecting  said  mill  and  for 
keeping  the  same  in  repair. " This  is  not  at  all  unusual  for  cor- 
porations in  those  days  were  narrowly  restricted  in  functions. 

If  they  wished  to  enlarge  their  sphere  of  activities  and  to  go 


1-  These  acts  may  be  found  in  Laws  of  New  York,  34th.  session. 


\:n:  O'V 


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49. 

beyond  what  a strict  interpretation  of  their  charter  indicated 
they  might  do,  then  it  wels  considered  only  fair  that  they  should 
assume  addition  obligations  in  regard  to  that  function.  In  all 
other  respects  they  had  limited  liability,  just  the  same  as  their 
contemporaries. 

An  Act  to  incorporate  the  Clason  Woollen  Manufacturing 
Society  in  the  Town  of  Yonkers,  in  the  County  of  Weschester. 

Passed  June  19,  1818.^ 

All  of  these  acts  were  the  same  as  those  passed  in  the  34th. 
session,  in  most  cases  containing  the  clause  quoted  on  page  47, 
or  words  to  the  same  effect. 

The  uniformity  of  the  above  acts  is  accounted  for  by  two 
general  acts  in  regard  to  corporations  that  were  passed  during 
the  34th.  session.  These  acts  stated  exactly  how  the  acts  incor- 
porating all  companies  must  read  in  regard  to  the  different 
features.  The  first  general  act,  passed  March  22,  1811,  contain- 
ed this  clause,  "VII.  And  be  it  further  enacted.  That  the  stock 
in  such  company  shall  be  deemed  personal  estate,  and  be  transfer- 
able in  such  manner  as  shall  be  prescribed  by  the  laws  of  the 
company:  and  that  for  all  debts  which  shall  be  due  and  owing  by 
the  company  at  the  time  of  its  dissolution,  the  persons  then 
composing  the  company  shall  be  individually  responsible  to  the 

extent  of  their  respective  shares  of  stock  in  the  said  company, 

2 

and  no  further. " 


1-  These  acts  may  be  found  in  Laws  of  New  York.  35th.  session. 

2-  Ibid. 

All  "acts"  hereafter  quoted  may  be  found  in  session  lav7S,  ‘onder 
the  year  they  are  dated.  


.0^ 


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50. 

Less  than  a month  later,  April  9,  1811,  another  general  act,  sim- 
iliar  to  it,  was  passed.  This  one  was  primarily  for  the  benefit 
of  creditors  and  aimed  to  bring  about  uniformity  and  honesty  in 
the  winding  up  of  corporations.  It  read  as  follows; 

"An  ACT  for  the  Relief  of  the  Creditors  of  Coiporations 
created  by  any  Law  of  this  State. 

I.  Be  it  enacted  by  the  People  of  the  State  of  New  York,  re- 
presented in  Senate  and  Assembly,  That  \;pon  the  dissolution 
of  any  corporation  already  created  or  which  may  be  hereafter 
created  by  any  law  of  this  state,  the  president  and  directors, 
or  the  managers  of  the  affairs  of  the  said  corporation  at  the 
time  of  its  dissolution,  by  whatsoever  name  they  may  be  known 
in  law,  shall  be  trustees  of  such  corporation  with  full  power 
to  settle  the  affairs,  collect  the  outstanding  debts  and  di- 
vide the  monies  and  other  property  among  the  stockholders, 
after  paying  the  obligations  due  and  owing  by  such  corpor- 
ation at  the  time  of  its  dissolution,  as  far  as  such  monies 
and  property  shall  enable  them. 

II.  And  be  it  further  enacted.  That  the  persons  constituted 
trustees  as  aforesaid  shall  have  authority  to  sue  for  and 
recover  the  aforesaid  debts  and  property  by  the  name  of  the 
trustees  of  such  corporation,  describing  it  by  its  corporate 
name,  and  shall  be  suable  by  the  same  name,  or  in  their  own 
names  and  individual  capacities,  for  the  debts  owing  by  such 
corporation  at  the  time  of  its  dissolution,  and  shall  be 
jointly  and  severally  responsible  for  such  debts  to  the 
amount  of  the  monies  and  property  of  such  corporation  at 

the  time  of  its  dissolution. " 


■' 


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I 

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• 4*^ol?juX©fiialb  afl  lo  ofcX?  adt 


51. 

There  were  some  acts  of  incorporation  during  the  34th.  and  35th. 
sessions  of  the  legislature  in  which  nothing  was  said  about  the 
liabilities  of  the  corporators.  If  there  were  any  doubts  in  the 
mind  of  an  investigator,  on  account  of  these  cases,  the  two  gen- 
eral acts  just  quoted  should  remove  them. 

The  acts  of  incorporation  passed  during  the  next  three 
sessions  contained  the  same  limiting  clause. ^ The  following 
incorporations,  one  for  each  session,  are  offered  in  proof  of 
this  statement: 

An  Act  to  incorporate  the  New  York  Copper  Manufacturing 


Company. 


Passed  April  9,  1814. 
37th.  Session. 


An  ACT  to  incorporate  the  Dutchess  County  Marble  Corrpany, 

Passed  March  19,  1813. 

36th.  Session. 

An  ACT  to  incorporate  the  Linen  Company. 

Passed  April  18,  1815. 

38th.  Session. 

Again  a general  act  reinforces  the  conclusions  obtained 
from  a study  of  the  individual  incorporations.  This  general  act 
was  ,passed  during  the  36th.  session,  April  9,  1813,  and  reads  as 
follows ; 

’Whereas  it  will  be  of  general  public  advantage,  and  aid  the 
several  manufacturing  companies  incorporated  in  this  state, 
as  well  as  many  private  individuals  engaged  in  domestic 
manufactures,  if  a company  should  be  established  for  the 
purpose  of  disposing  of  articles  solely  of  American  manu- 
facture, and  to  make  loans  thereon  when  deposited  for  sale: 


1-  S\pra.  Page  47. 


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JJS 


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52. 

Therefore,  I.  Be  it  enacted  by  the  people  of  the  state  of 
state  of  New-York,  represented  in  Senate  and  Assembly,  That 
Thomas  Storm,  Isaac  Marquand,  Seth  Capron,  and  all  such 
other  persons  as  now  are  or  hereafter  shall  be  associated 
for  the  purpose  aforesaid,  be  and  are  hereby  ordained,  con- 
stituted and  declared  a body  corporate  and  politic  in  fact 
and  in  name,  by  the  najrne  and  style  of  ”the  president  and 
directors  of  the  commission  company, ” and  that  they  and 
their  successors,  for  the  term  of  fifteen  years  hereafter, 
shall  and  may  have  succession,  and  shall  be  persons  in 
law  capable  of  suing  and  being  sued,  defending  and  being 
defended,  answering  and  being  answered  unto  in  all  courts 
and  places  whatsoever,  and  of  holding  and  conveying  real 
and  personal  estate  for  the  use  of  the  corporation,  and  that 
they  and  their  successors  may  have  a common  seal  and  may 
change  and  alter  the  same  at  their  pleasure;  Provided,  That 
such  real  and  personal  estate  shall  be  necessary  for  the 
objects  contemplated  in  this  act. 

III.  Ane  be  it  furthermore  enacted.  That  the  total  amount  of 
debts  which  the  said  corporation  shall  at  any  time  owe  shall 
not  exceed  twice  the  sum  of  the  capital  stock  subscribed  and 
actually  paid  into  the  said  company,  and  in  case  of  such  ex- 
cess, the  directors  under  whose  administration  it  shall 
happen,  excepting  such  as  axe  absent,  or  not  assenting,  shall 
be  liable  for  the  same  in  their  separate  and  private  capac- 
ities, but  this  shall  not  be  construed  to  exempt  the  said 
corporation  or  any  estate  real  or  personal  which  they  may 
hold  as  a body  corporate  from  also  being  liable  and  chargeable 


■"tjait  ''ir> 

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;;  . 3 ’ ^4, ; ; : 

. .ZB  saiira3*oD  Xcrcm  Jfc>r*e  ,:  uiAf©  lo  oidiiosao  fusX 

a;f*rvoc  IlJe  at  c^v.h  -gAlifS  hrxP  p ^£^i>in©l«i) 

,«> 

.,  X££>:  ^:ii{9v^C>o  *to  f tXOf  JiilW  eooAXq  X>iia 

' - ' '’"'" ' ^ i 

&£d:^  btji  ^aoti^'tofficx^  sri"  tc  50%.  tdt  -lOl  Ifldoaioq  fc/iE 

' ' ? 

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,l'3hlro't%  :^i.J(ifiet!<^  6d»%  fed?  t«iX« 

‘’X- 

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. ) Q ^'"< 

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' sV 

lo  XitLOfiN©  iii^oX  e:lt  XiidT  ,{)f^Xj>e/S:o  exOj^xpaXxirx  tt  ©d  ^eoA  .tll 
• 

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'•'4 

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doifa  Ip  «80c  aX  bim  .^cd^qiapo  ? X0&  o^l^rxi  btsq  xXXaaVca 

^ • r '■*  .»J*:  - . - . 

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iiBda  ^:gnl^fxv^0£  Xofi  to  otu  dox/«-  i^nX^qBoxo  ^iseq^iad 

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X'Xi^  »d?  ot^  psjX'Tjctjoo  &<f  jQfj  Xl^ile  aXdt  XiM  .editi* 


ta.'C  j!oX|iv.‘  'i^AORTfcq  10  iaoi  o^jaXa-^  ^xu5  TOy- odXlaToqioo 


©lU.««>.^TAjixci.  i*0uu  ©XdiBiX  i^aXad  oaix>  mori  ©jfjsioqrop  vXiod  0 fcfis^tXo 

' K.'. 


53. 


with  such  excess. " 

It  will  be  noticed  that  the  last  sentence  of  the  above  act  says 
that  the  property  which  they  own  ”as  a body  corporate”  may  be 
taken  for  debt,  but  it  does  not  go  on  and  mention  the  stockhold- 
er. 

The  next  general  act,  passed  February  25,  1815,  in  the 
38th.  session  of  the  legislature,  will  make  the  policy  of  the 
legislature,  during  this  period,  still  more  clear.  The  act  follows: 
•An  ACT  to  amend  the  Act  entitled  ”An  Act  relative  to  Incor- 
porations for  Manufacturing  Purposes”. 

Be  it  enacted  by  the  People  of  the  state  of  New-York,  repres- 
ented in  Senate  and  Assembly,  That  from  and  after  the  pass- 
ing of  this  act,  it  shall  and  may  be  lawful  for  any  five  or 
more  persons  who  shall  be  desirous  of  forming  a company  for 
the  purpose  of  manufacturing  clay  or  earth  into  wares  or 
articles  for  any  use  whatsoever,  to  associate  together  and 
form  such  company  according  to  the  directions  and  restrict- 
ions mentioned  in  the  act  entitled  "an  act  relative  to  in- 
corporations for  manufacturing  purposes,  ” passed  March  22d, 
1811;  and  such  company  when  formed,  and  their  successors, 
shall  be  a body  politic  and  corporate,  in  fast  and  in  name, 
with  all  the  privileges,  capacities  and  liabilities  in  the 
said  act  mentioned  and  contained. ' 

This  act  not  only  gave  corporators  the  same  limitation  expressed 
in  the  act  of  1811,  but  operated  as  an  enabling  act  for  any  per- 
sons desirous  of  entering  this  particular  line  of  business.  It  is 
significant  that  in  order  to  "encourage”  industry  this  feature 
is  always  included. 


I.  ■W 

’^.Bsasxfi  doif#  ittw 
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0 , 'v  , .V-'>*‘  ^ 

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.b^buloal  a'^wXn  al 


54. 

Only  a year  later,  in  the  39th.  session  of  the  legis- 
lature another  general  act  was  passed,  March  29,  1816,  called 
An  ACT  to  Continue  in  Force  Certain  Acts  therein  mentioned.  By 
the  terms  of  this  act  was  continued  in  force  until  1817  and  no 
longer  "an  act  to  amend  an  act  relative  to  incorporations  for 
manufacturing  purposes"  passed  February  25,  1815.  It  is  evident 
from  this  that  there  was  manifesting  itself  a slight  opposition 
to  the  extension  of  these  generous  terms  to  corporators.  Never- 
theless they  evidently  intended  to  make  it  work  while  it  lasted 
as  they  included  a clause  to  encourage  other  lines  of  industry: 
"II.  And  be  it  further  enacted.  That  from  and  after  the 
passage  of  this  act,  and  during  the  time  in  which  the  acts 
above  mentioned  shall  continue  in  force,  it  shall  and  may 
be  lawful,  for  any  five  or  more  persons,  who  shall  be  desir- 
ous of  forming  a company  for  the  purpose  of  manufacturing 
pins,  or  for  the  purpose  of  manufacturing  beer,  ale  or  port- 
er, or  for  the  purpose  of  extracting  lead  from  ore,  to  assoc- 
iate together,  and  form  a company  according  to  the  directions 
and  under  the  restrictions  mentioned  in  the  act,  entitled, 

'an  act  relative  to  incorporations  for  manufacturing  purpos- 
es; ' and  such  company  when  so  formed,  and  their  successors, 
shall  be  a body  politic  and  corporate,  in  fact  and  in  name, 
with  all  of  the  ce^acities,  privileges,  and  liabilities,  in 
the  aforesaid  act  mentioned  and  contained. " 

The  next  year,  when  this  act  was  to  have  expired,  the 
legislature  passed  the  following  act: 

"An  ACT  reviving  the  act  relative  to  incorporations  for 
manufacturing  puiposes. 


pr; 


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I ■■  ji 

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>.  'i  M 


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V “r."' 


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ifc»8oqixiq  ^alTytoa^jt/ABic 


'rjgj-.ffe'gairTTr"  *gje : 


i«.<i  i‘7 


55. 


Be  it  enacted  by  the  people  of  the  state  of  New-York,  rep- 
resented in  Senate  and  Assembly,  That  the  act,  entitled, 

'an  act  relative  to  incorporations  for  manufacturing  pur- 
poses, ' passed  March  twenty-second,  in  the  year  one  thous- 
and eight  hundred  and  eleven,  be  and  the  same  is  hereby 
revived  and  continued  in  force  for  five  years  from  the 
passage  of  this  act.  " 

Easy  incorporations  and  the  right  to  incoiporate  certain  lines 
of  business  under  the  general  provisions  for  the  same,  were  to 
continue  until  1823  by  this  act.  In  all  cases  they  were  to  have 
limited  liability  as  provided  in  the  original  act.  This  prin- 
ciple was  so  popular  and  was  considered  such  an  encouragement  to 
business  that  the  legislature  of  New  York,  in  1822,  went  even  be- 
yond the  English  common  law  in  their  endeavor  to  favor  the  stock- 
holders of  business  enterprises,  viz.  they  authorized  the  limited 
partnership. ^ The  law  was  patterned  after  the  French  societe 
commandite;  there  was  no  counterpart  in  English  law,  and  never 
has  been,  until  1907.  This  is  about  as  far  as  it  has  been  con- 
sidered wise  to  carry  the  principle  of  limited  liability  in  busi- 
ness, and,  it  seems  signinf icant,  that  New  York  state  reached 
this  limit  as  early  as  1822. 

From  1819  to  1825  there  were  fewer  incoiporations  for 
manufacturing  purposes.  During  the  year  1820  the  legislative 
policy  remained  the  same.  The  North  (Hudson)  River  Steam-Boat 
Company  and  the  Lake  Erie  Steam-Boat  Conpany  were  made  liable 
as  common  carriers  but  nothing  is  said  as  to  their  liability 
otherwise.  As  other  acts  of  this  year  show  the  policy  to  have 

1-  Laws  of  New  York.  Sess.  45,  c 244,  and  Sess.  50,  c 238. 


nmesuw^ 


V ‘ » , 

-q«>T  ^3fT60Y-«6;!  lo  ©taid  9l<50©q>4^  ^ Momti 


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I 


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^^J5jS^5EirpSB3CBB3^J52,^3PS3fclS3S2lSttS5%a®??S 


soonansi 


wtdaap: 


56. 

been  to  give  stockholders  the  benefits  of  limited  liability.  The 
The  section  making  these  two  companies  liable  as  common  carriers 
reads  thus: 

"VI.  And  be  it  further  enacted.  That  the  members  of  the  said 
corporation  shall  be  liable,  Individually,  in  the  same 
manner  as  carriers  at  common  law,  for  the  safe  transpor- 
tation of  all  goods,  wares,  and  merchandize,  delivered  to 
the  agents  of  such  corporation,  and  for  all  contracts 
which  shall  be  made  by  such  agents,  relating  to  the  business 
of  the  said  corporation. " 

In  1831  "An  ACT  to  revive  and  continue  in  force  and  operation 
an  'Act  relatice  to  Incoqi^po  rat  ions  for  Manufacturing  purposes,'" 
was  passed.  This  has  reference  to  the  same  act  that  was  revived 
during  the  year  1818  and  which  was  to  continue  in  force  for  five 
years.  This  time,  two  years  before  the  former  act  would  have  ex- 
pired, a duplicate  act  was  passed  and  no  time  limit  set.  During 
the  next  year  the  original  act  was  amended: 

An  ACT  to  amend  an  act  entitled  "An  act  relative  to  incor- 
porations for  Manufacturing  Purposes." 

This  act  continues  in  force  the  former  acts,  which  had  limited 
liability,  though  that  is  not  mentioned  in  the  last  act  — it 
was  not  necessary  to  mention  it.  • — and  gives  the  corporations 
incorporated  under  it  the  right  to  mortgage  their  property 
just  as  an  individual  might,  provided  the  written  assent  of  the 
stockholders  owning  more  than  two- thirds  of  the  stock  is  ob- 
tained. This  act  was  passed  during  the  45th.  session  of  the 
legislature,  April  16,  1833. 

The  policy  of  the  legislature  from  this  time  to  1835 


odT  « 6*f^  BT©fcXoiJ3{o€)iJ“«  ovij'^oif  CQ^d 
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r.  - 


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57. 

is  more  difficult  to  trace,  incorporations  for  general  manufactur- 
ing or  business  purposes  are  fewer,  relief  acts  are  more  numer- 
ous in  the  session  laws  of  this  period.  Nevertheless,  the  legis- 
lative policy  in  regard  to  new  incorporations  did  not  change  un- 
til 1835. 

In  this  year,  however,  there  was  a decided  change.  The 
stockholders  were  held  fully  liable  by  clauses  like  the  one  in 
the  act  incorporating  the  Troy  Steamboat  Company,  passed  March 
31,  1835,  which  read  as  follows: 

"VII.  And  be  it  further  enacted.  That  notwithstanding  the 
said  company  is  hereby  incorporated,  and  not  withstanding 
any  thing  herein  contained,  the  members  and  stockholders 
of  the  said  company,  including  the  directors,  shall  be  ans- 
werable and  responsible,  in  all  respects,  upon  all  eJ5)ress 
contracts  made  by  the  said  corporation,  or  by  the  said 
directors,  or  by  their  agents  or  servants,  lawfully  author- 
ised, and  may  at  all  times  be  sued  and  prosecuted  either  at 
law  or  in  equity,  as  if  this  act  held  not  been  passed;  and 
the  said  stockholders  and  directors  shall  also  be  answerable 
and  responsible  i?>on  all  implied  contracts,  and  for  all  acts 
of  malfeasance,  misfeasance  or  nonfeasance  of  the  said  com- 
pany, or  of  the  directors,  agents  or  servants  thereof,  law- 
full  authorised,  as  if  the  said  company  were  not  incorpor- 
ated, and  as  if  this  act  had  not  been  passed,  any  law  or 
usage  to  the  contrary  notwithstanding. " 

Some  of  the  other  acts  carrying  the  same  clause,  or,  one  similiar 
were : 

An  ACT  to  incorporate  the  Franklin  Manufacturing  Company. 


•j  j *,  .r  » 


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58. 

Passed  April  25,  1825. 

An  Act  to  incoiporate  the  Steam  Saw  Mill  Association. 

Passed  April  8,  1825. 

An  Act  to  incorporate  the  Association  of  the  New  York 
White  Lead  Works.  Passed  i^ril  15,  1825. 

An  ACT  to  incorporate  the  New  York  Mount  Hope  Loan  Com- 
pany, Passed  April  18,  1825, 

An  ACT  to  incorporate  a Gah  Light  Company  in  the  Village 
of  Brooklyn.  Passed  April  18,  1825. 

An  ACT  to  incoiporate  the  Hudson  River  Steamboat  com- 
pany. Passed  April  20,  1825. 

An  ACT  to  incorporate  the  President,  Managers  and  Com- 
pany of  the  Delaware  and  Susquehannah  Navigation  Company 

Passed  April  20,  1825.^ 

The  acts  of  the  49th.  session  of  the  legislature,  1826,  are 
more  varied.  It  is  necessary  to  study  all  of  them  in  order  to 
determine  ;)ust  what  was  the  policy  then  in  use.  Such  a study 
indicates  that  limited  liability  was  not  a feature  of  the  in- 
corporations of  the  year  1826,  any  more  than  they  were  of  the 
year  1825.  The  following  incorporations,  together,  illustrate 
the  changed  corporate  policy  of  these  two  years; 

An  ACT  to  incorporate  the  Cohoes  Con^jany, 

Passed  March  28,  1826.  , 

An  ACT  to  incorporate  the  Dutchess  County  Iron-Works 
and  Smelting  Company.  Passed  April  17,  1826. 


1-  The  acts  preceeding  this  point  may  be  found  in  Laws  of  New 
York,  48th.  Session. 

The  acts  following  this  point,  to  those  bearing  date  of 
1827,  are  found  in  Laws  of  New  York,  49th.  Session. 


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t^A. 


59. 

An  ACT  to  incorporate  the  New-York  Crown  Glass  Manufactur- 
ing Company.  Passed  March  8,  1826. 

An  ACT  to  revive  and  continue  in  force  the  act  entitled, 
"An  ACT  to  incorporate  the  Oneida  Manufacturing  Society, " 
Passed  March  9,  1810.  Passed  March  8,  1826. 

An  ACT  to  continue  in  force  and  ajnend  the  act  entitled. 

An  ACT  to  incorporate  the  Oriskany  Manufacturing  Com- 
pany. " Passed  April  15,  1826. 

This  incorporating  act  contains  the  following  clause,  which 
outlines  just  how  the  stockholders  are  to  be  held  liable; 

(and,  it  is  my  opinion,  that  if  all  of  the  acts  of  this  session 
read  as  this  one  does,  the  stockholders  would  have  had  a kind 
of  limited  liability  very  similiar  to  the  kind  we  have  now.  I 
base  this  opinion  of  the  fact  that,  in  the  next  session,  the 
expression  "to  the  amount  of  stock  held  by  them"  meant  that, 
if  such  stock  were  not  fully  paid,  then  the  owners  could  be 
forced  to  conplete  the  payments. ) 

"2.  And  be  it  further  enacted.  That  the  stockholders  of 
the  said  company  shall  be  held  responsible  jointly  and 
severally  in  their  individual  capacities,  to  the  amount 
of  stock  held  by  them  respectively,  for  any  debts  here- 
after contracted  by  the  company;  and  any  person  having 
any  demand  against  the  said  company,  may  prosecute  any 
stockholder  thereof,  separately,  or  any  two  or  more  of 
them  jointly,  and  recover  in  any  court  having  cognizance 
thereof:  Provided,  That  no  prosecution  shall  be  commenced 
against  any  of  the  stockholders  until  the  person  or  per- 
sons having  such  demand  or  demands  shall  have  first  prose- 


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60 


cuted  the  directors,  or  such  stockholders  as  were  directors 
at  the  time  when  such  debt  or  demand  was  contracted,  to 
judgement  and  execution,  to  the  end,  that  the  stockholders 
who  were  directors  at  the  time  any  debt  or  demand  was 
created,  shall  be  liable  in  the  first  instance:  And  pro- 
vided further.  That  no  such  suit  shall  be  sustained  with- 
out proof  that  the  payment  thereof  had  been  demanded  of 
the  proper  officer  of  said  company,  and  refused  or  not 
complied  with. ” 

An  act  that  was  passed  only  two  days  later,  "An  Act  to  incorpor- 
ate the  Shamrock  Manufacturing  Company.",  contains  a much  diff- 
erent clause: 

"8.  And  be  it  further  enaicted.  That  the  directors  and  stock- 
holders of  the  said  corporation,  and  each  and  every  of  their 
heirs,  executors  and  administrators  shall  be  responsible  and 
answerable  for  the  debts  contracted  or  owing  by  the  said  cor- 
poration, and  on  all  contracts  made  by  the  said  corporation, 
or  by  authority  thereof,  during  the  time  they  are  stockhold- 
ers, to  the  amount  of  the  stock  held  by  them  respectively, 
in  the  same  manner  as  if  the  said  directors  and  stockholders 
were  not  incorporated,  or  were  joint-dealers  or  copartners, 
and  may  be  sued  and  prosecuted,  either  at  law  or  in  equity, 
as  if  they  were  carrying  on  the  business  and  concerns  of  the 
said  corporation  as  joint-dealers  and  copartners,  without 
being  incorporated,  any  thing  herein  contained  notwithstand- 
ing. " 

The  last  few  words  of  this  clause  as  well  as  all  of  it  takes  as 
a whole  indicate  that  the  stockholders  would  be  held  fully  liable 


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61, 


for  the  debts  of  the  company. 

The  policy  of  making  stockholders  fully  liable,  or 
nearly  so,  last  only  two  years,  1835  and  1836,  Beginning  with 
the  50th*  session  of  the  legislature  of  New  York  state  new  in- 
corporations carried  with  them  the  privilege  of  limited  liabil- 
ity. Before  the  end  of  the  session  the  new  acts  of  incorpor- 
ation merely  stated  the  following:  "#3  The  corporation  shall 
hereafter  be  subject  to  the  provisions  of  Title  third.  Chapter 
eighteen  of  the  First  Part  of  the  Revised  Statutes,  and  this 
act  may  at  any  time  be  amended  or  repealed.”  — From  an  act 
renewing  the  charter  of  the  Oriskany  Manufacturing  Company. ^ 

The  Revised  Statutes  referred  to,  have  only  this  to  say: 

"Liability  of  stockholders:-  Where  the  whole  capital  of  a 
corporation  shall  not  have  been  paid  in,  and  the  capital 
paid,  shall  be  insufficient  to  satisfy  the  claims  of  its 
creditors,  each  stockholder  shall  be  bound  tp  pay  on 
each  share  held  by  him  the  sum  necessary  to  complete  the 
amount  of  such  share,  as  fixed  by  the  charter  of  the 
company,  or  such  proportion  of  that  sum,  as  shall  be  re- 
quired to  satisfy  the  debts  of  the  company." 

The  same  statement  occurs  in  the  later  editions  of  the  Revised 
Statutes,  and  this  has  been  the  situation  existing  in  the  law 
of  the  state  of  New  York  to  date. 


1-  Some  other  acts  of  this  session  of  the  legislature  that  throw 
light  on  the  policy  pursued: 

An  Act  to  incorporate  the  Buffalo  Hydraulic  Association. 

Passed  March  8,  1837, 

An  Act  to  incorporate  the  Palmyra  Manufacturing  Company. 


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.XX; 


,62. 


What  has  been  said  about  limited  liability  concerns 
New  York  state  only.  In  most  of  the  other  early  states  there  was 
not  such  an  orderly  and  systematic  application  of  the  principle, 
with  only  one  two-year  break.  In  order  to  show  the  complete 
development  of  limited  liability  in  this  country  it  would  be 
necessary  to  make  a thorough  study  of  the  statute  laws  of  all 
of  the  states,  and,  then,  it  would  be  difficult  to  show  the 
existence  of  any  orderly  development. 

The  above-mentioned  break  in  the  continuity  of  this 
idea,  in  New  York  state,  was  merely  an  indication  of  a policy 
that  was  current  at  that  time.  Kent  says,  "There  has  been  a 
disposition  in  some  of  the  states  to  change,  in  an  essential 
degree,  the  character  of  private  incorporated  companies,  by 
making  the  members  personally  responsible  in  certain  events, 
and  to  a qualified  extent,  for  the  debts  of  the  company.  This 
is  intended  as  a check  to  improvident  conduct  and  abuse,  and  to 
add  to  the  general  security  of  creditors;  and  the  policy  has 
been  pursued  to  a moderate  and  reasonable  degree  only,  in  Rhode 
Island,  New  York,  Maryland,  and  South  Carolina,  But  in  Massachus- 
etts, by  a series  of  statutes,  passed  in  1808,  1818,  1821,  and 
1827,  an  unlimited  personal  responsibility  was  io^^osed  iQ)on  the 


Continued:  Passed  March  29,  1827. 

An  Act  to  incorporate  the  Casadagua  Steam  Mill  Company. 

Passed  April  7,  1837. 

An  Act  to  incorporate  the  Monroe  Manufacturing  Company. 

Passed  March  28,  1828.* 

An  Act  to  incorporate  the  Attica  Manufacturing  Company. 

March  31,  1828.* 


♦51st.  Session, 


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1^' 


63. 

the  members  of  manufacturing  corporations,  equally  as  in  the  case 
of  commercial  partnerships.  (See  Barre  Bank  v.  Hinghara  Manufactur- 
ing company,  127  Mass.  563. ) This  unlimited  personal  responsibility 
was  restrained  by  statute  in  1828  and  1830,  and  the  responsilility 
applied  only,  in  the  case  of  banks,  to  the  stockholders  at  the 
time  of  loss,  by  minraanageraent  of  directors,  or  for  outstanding 
bills  at  the  time  the  charter  e3q>ires.  They  are  made  liable  in 
their  individual  capacities  only  to  the  entent  of  the  stock  they 
may  hold  in  the  bank  at  the  time  of  the  abuse,  or  at  the  time  of 
the  expiration  of  the  charter.  This  provision  was  continued  by  b 
the  Mass.  Rev.  Stat.  of  1836,  p.  312,  sec.  30,  31,  and  has  been 
essentially  adopted  by  statute  in  New  Hampshire,  in  1837,  in  re- 
spect to  manufacturing  corporations."^ 


1-  Kent’s  Commentaries.  Vol,  II,  p.  272. 

See  also  Angell  and  Ames  on  Corporations.  Chap.  17,  p.  648- 
656. 


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-X'i'  . i ,Va 


64. 


CHAPTER  VI. 

The  effect  of  limited  liability  in  corporation  finance 
has  been  to  encourage  greater  business  activity,  to  enable  in- 
vestors to  undertake  new  and  untried  ventures,  to  call  out  cap- 
ital that  might  not  otherwise  have  been  at  the  disposal  of  the 
business  enterprise. 

The  earliest  case  of  limited  liability  by  statute,  in 
England,  was  the  Act  of  1662  which  conferred  this  privilege  i:pon 
the  East  India,  African,  and  Fishery  companies.  Even  at  this 
early  time  it  was  evident  that  such  a privilege  gave  those  com- 
panies an  advantage.  W.  R.  Scott  remarks,  "The  effect  of  this 
statute  was  that  a shareholder  was  only  liable  for  the  amount 
unpaid  on  his  shares,  and  it  is  clear  that  such  legislation  was 
disadvantageous  to  unincorporated  con^anies. 

Mathew  Arnold  Begbie,  writing  in  1848  at  the  time  when 
the  question  of  limited  liability  was  under  discussion  every- 
where in  England,  devotes  his  whole  book^  to  discussing  the  ad- 
vantages and  disadvantages  of  the  principle  and  always  decides 
in  its  favor.  He  shows  the  advantages  of  such  limitation  of 
liability  to  the  amount  of  money  invested  in  America  and  on 
the  Continent  of  Europe.  After  discussing  the  disadvantages  of 
having  a few  large  houses  carry  on  the  foreign  trade  of  England 


1-  W.  R.  Scott.  Joint  Stock  Companies  to  1720.  Vol.  I,  p.  270. 

2-  M.  A.  Begbie.  Partnership  "en  Commandite. " 

or 

Partnership  with  Limited  Liabilities. 


.ie 

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(ii 


'.'•  gi>r: 


65. 


and  after  showing  that  wild  speculation  exists  because  there  is 
no  safe  plane  for  the  middle  classes  to  invest  their  money  he 
says:  "This  running  rashly  into  such  speculations  may  be  prevent- 
ed, if  the  middle  classes  be  allowed  to  invest  their  money,  with 
comparative  safety,  in  Great  Britain,  Ireland,  and  the  Colonies, 
by  means  of  limited  partnerships^,  in  which  the  liability  does 
not  extend  beyond  the  actual  amount  of  money  put  into  each  con- 
cern by  each  person The  character  and  advantages  of  the 

principle  of  Limited  Partnerships  cannot  be  more  truly  and  forc- 
ibly given  than  in  the  words  of  one  of  the  witnesses,  on  the 
Law  of  Partnership,  in  1836:-  'It  is  chiefly  called  into  oper- 
ation in  extensive  manufactories,  wherein  individual  means  are 
necessarily  inadequate  to  si:5)ply  the  capital  for  carrying  on  the 
concern.  It  holds  an  intermediate  station  between  Joint-Stock 
Companies  established  by  Charter  or  Act  of  Parliament  and  the  less 
extensive  character  of  Ordinary  Partnership.  By  its  means  large 
and  efficient  s\;pplies  of  c?^ital  may  be  obtained  and  put  into 
operation,  free  from  the  Monopoly  rand  uncontaminated  by  the 
spirit  of  share- jobbing,  which  chartered  companies  too  frequent- 
ly obtain.  It  excites  Enterprise  without  inducing  Gambling;  it 
increases  Manufactures  without  intro  ducing  Scheming.  Partner- 
ships of  this  nature  are  frequently  formed  where  practical 
science  and  ability  reside  in  persons  who  have  not  the  pecuniary 
means  of  bringing  their  talents  and  skill  into  operation;  but  who. 


1-  Ibid.  While  it  is  the  limited  partnership  that  Mr.  Begbie  is 
advocating,  many  of  the  things  that  he  says  about  lim- 
ited liability  in  them  are  equally  true  of  the  same  prin 
ciple  used  in  the  corporation. 


V *■  . f,  i 

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tl  'v. 


66. 

by  the  aid  of  such  associations  may  be  enabled  to  do  so,  to  the 
common  gain  of  those  who  thus  associate  themselves  and  to  the 

great  promotion  of  the  public  good.' If  the  absurd 

enactments  of  the  British  Legislature  as  to  the  liability  of  part- 
ners were  annulled,  and  if  the  system  of  Limited  Partnerships 
were  admitted  into  operation  — as  it  is  in  Holland,  Belgium, 
France,  and  America  — persons  in  the  middle  claases,  even  with 
comparatively  contracted  means,  might  unite  to  sij^jply  that 
aggregate  of  Capital,  necessary  to  carry  on  different  branches 
of  trade  and  commerce,  by  which  their  personal  resources  would 
be  augmented  and  the  requirements  of  the  country  be  adequately 
provided  for.  Thus,  instead  of  bloated,  plethoric  houses,  start- 
ed with  minimum  of  capital  and  conducted  with  a majcimum  of  dis- 
honesty, we  should  and  ought  to  have  firms  with  adequate  means, 
whether  belonging  to  a few  moneyed  individuals,  or  resulting 
from  the  aggregate  contributions  of  numerous  persons  joined  to- 
gether in  an  extensive  copartnership,  and  liable  only  to  the 
extent  of  the  capital  which  each  had  brought  into  that  aggregate 
coiiLTion  stock."  Pages  more  of  the  same  kind  of  arguments  might 
be  taken  from  this  same  source.  He  can  not  say  enough  in  favor 
of  the  principle  of  limited  liability.  He  attributes  the  whole 
prosperity  and  development  of  the  United  States  (to  the  time  he 
wrote,  1848.)  to  the  use  of  the  limited  partnership  or  corpor- 
ation with  limited  liability.  He  says  that  the  prosperity  of 
the  United  States  "has  mainly  resulted  from  the  aggregate  of 
small  means  into  large  amounts,  by  means  of  the  Limited  Partner- 
ship  Why  do  we  thus  point  out  what  has  been  done  in  the 

United  States  with  respect  to  Steam  Navigation,  Railways,  and 


t.' 


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the  Electric  Telegraph?  — Because  the  triumphs  which  have  then 
and  there  been  achieved  would  never  have  been  accomplished  with- 
out the  aid  of  capital,  which,  distributed  as  it  is  in  that 
country  among  all  classes,  never  could  have  been  brought  to  bear 
upon  these  aids  to  national  prosperity  and  social  civilization  of 
the  law  had  there  beenyplaced  a barrier  to  its  employment.  But 
the  Limited  Partnership  system,  which  so  largely  prevails  there, 
has  enabled  capital  to  be  thus  employed,  without  involving  the 
owner  in  unknown  and  ruinous  risks.  It  has  allowed  the  use  of 
capital  for  the  construction  and  ownership  of  steamboats,  rail- 
ways, and  the  telegraph.  Without  it,  the  latter  could  never 
have  been  completed  — or,  at  least,  not  without  delay  and  diff- 
iculty. Nearly  all  the  Lines  of  Telegr^h  in  1;he  United  States 
are  in  the  hands  of  associations  of  individuals  simply  esta'o- 
lished  in  special  or  limited  partnership,  and  are  profitably 
working. " 

Spencer  Brodhurst,  writing  in  MacMillan’s  liagazine  on 
”Limited  Versus  Unlimited  Liability^,  says,  ” Joint-stock  capital 
is,  no  doubt,  more  ventursorae  and  ready  to  take  risks  than  is 
private  capital,  for  the  very  reason  that  if  failiire  does  ensue 
the  utmost  extent  of  the  loss  in  known  beforehand.  But  it  is 
just  the  venturous  spirit  so  created  which  has  opened  new  fields 
of  trade  abroad,  and  has  encouraged  fresh  departures  and  inven- 
tions in  commercial  operations  at  home There  can,  indeed, 

be  little  doubt  that  limited  liability  is  to  be  preferred  to  un- 
limited, whether  the  question  be  considered  from  the  point  of 


1-  No.  1898  Vol,  79,  p.  20-39. 


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the  community,  of  the  shareholder,  or  of  the  creditor. ” 

Jay.  P.  Lee^  says,  "It  is  a well-known  fact  that  many 
of  the  enterprises  which  have  greatly  developed  the  resources 
of  the  country,  and  ivhich  have  been  of  great  benefit  to  society, 
would  never  have  been  undertaken  without  corporate  organizations. 
No  new  enterprise  is  a cinch,  it  is  more  or  less  uncertain  and 
speculative,  and  where  it  involves  large  e:xpenditures  of  capital, 
unless  the  men  who  undertake  it  know  the  limit  of  their  liability, 
it  will  remain  undeveloped, " 

Hartley  Withers  states,  "By  means  of  tiie  joint-stock 
system,  far-seeing  folk  with  plenty  of  idea^  and  little  money 
are  able  to  get  subscriptions  for  their  ideas  from  those  who 
have  funds  to  invest,  and  so  the  material  resources  of  the  world 
have  been  incalculably  increased.  Sometimes  the  ideas  do  not 
pay  and  the  subscribers  to  them  are  saddened;  but,  in  the  mean- 
time, Continents  have  been  covered  with  railways,  oceans  have 
been  crowded  with  steamships,  and  most  of  the  habitable  globe 
has  been  joined  together  into  one  humming  hive  of  industry." 

Kent^  says  that  "The  multiplication  of  corporations 
and  the  avidity  with  which  they  are  sought,  have  arisen  in  con- 
sequence of  the  power  which  a large  and  consolidated  capital 
gives  them  over  business  of  every  kind;  and  the  facility  which 
the  incorporation  gives  to  the  management  of  that  capital,  and 


1-  Publications  of  the  Michigan  Political  Science  Association. 
No.  3,  p.  74,  75. 

3-  Hartley  Withers.  Stocks  and  Shares.  Intro.  30,  31. 

3-  Kent's  Commentaries,  Yol.  II,  #273. 


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69. 

the  security  which  it  affords  to  the  persons  of  the  members,  and 
to  their  property  not  vested  in  the  corporate  stock," 

Nicholas  Murray  Butler,  speaking  at  the  One  Hundred  and 
Forth  Third  Annual  Banquet  of  the  Chamber  of  Commerce  of  the 
State  of  New  York,  November  16,  1911,  said,  "This  new  movement 
of  cooperation  has  manifested  itself  in  the  last  sixty  or  seventy 
years  chiefly  in  the  limited  liability  corporation.  I weigh  ray 
words,  when  I say  that  in  my  judgement  the  limited  liability  cor- 
poration is  the  greatest  single  discovery  of  modern  times,  whether 
you  judge  it  by  its  social,  by  its  ethical,  by  its  industrial  or, 
in  the  long  run,  — after  we  understand  it  and  know  how  to  use  it, 
— by  its  political  effects.  Even  steam  and  electricity  are  far 
less  important  than  the  limited  liability  corporation,  and  they 
would  be  reduced  to  comparative  impotence  without  it.  What  is  a 
limited  liability  corporation?  It  is  simply  a device  by  which  a 
large  number  of  individuals  may  share  in  an  undertaking  without 
risking  in  that  undertaking  more  than  they  voluntarily  and  ind- 
ividually assume.  It  substitutes  cooperation  on  a large  scale 
for  individual,  cut-throat,  parochial  competition.  It  makes 
possible  huge  economy  in  production  and  trading.  It  means  the 
steadier  employment  of  labor  at  an  increased  wage.  It  means  the 
modem  provision  of  industrial  insurance,  of  care  for  disability, 
old  age  and  widowhood.  It  means  — and  this  vital  to  a body  like 
this  — it  means  the  only  possible  engine  for  carrying  on  inter- 
national trade  on  a scale  commensurate  with  modern  needs  and 
opportunities. 

What  would  happen  to  the  export  trade  of  the  United  States 
if  we  were  to.rgive  up  our  limited  liability  corporations  and  go 


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70. 

back  to  individual  competition. ...  If  this  principle  is  so  bene- 
ficent and  so  important  that  as  soon  as  it  was  discovered  it 
spread  all  over  the  civilized  world  and  brought  about  a develop- 
ment the  like  of  which  man  has  never  seen,  how  have  our  troubles 
arisen?”  This  quotation  is  taken  from  a discussion  of  the  Sher- 

.man  law,  and  the  author  goes  on  to  show  that  the  business  diff- 

iculties then  present  were  not  due  to  the  limited  liability 
corporation,  nor  to  its  size.^ 

From  my  own  study  of  this  subject  I have  arrived  at 

the  ssune  conclusion,  viz.,  that  limited  liability  has  had  a very 

beneficial  influence  \:pon  business;  that,  without  it,  many  of 
our  modern  achievments  would  have  been  much  slower  in  their 
development;  that  its  advantages  far  outweigh  its  disadvantages. 


FINIS. 


Nicholas  Murray  Butler.  Why  Should  We  Change  Our  Form  of  Govem- 
ment.  p.  ,83,  85.  


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